Is Limited Attention Universal? Evidence from Surprising Earnings News among Economically Linked Firms

Abstract

The authors examine investors’ limited attention to surprising earnings news among economically linked firms. They do not find evidence of investors’ attention constraints on supplier firms after the announcement of customer firms’ surprising earnings news. Abnormal returns of supplier firms at the announcement of customer firms’ negative (positive) standardized unexpected earnings (SUE) are negative (positive) and significant, and cumulative abnormal returns (CAR) from day 1 to day 10 become insignificant. They also document that information uncertainty delays the diffusion of information between economically linked firms. Thus, the notion of limited attention is not a universal phenomenon, but it is subject to the nature of both the news and the parties involved.