Abstract
We examine how investor attention changes when a firm adopts a modern news dissemination technology. We find that after continental European firms begin using an English-language electronic wire service to disseminate company news, they exhibit a stronger initial reaction to earnings surprises, a lower post earnings announcement stock price drift, and an increase in abnormal trading volume near earnings announcements, compared with when they disseminated their news in non-electronic format and in a continental European language. Our results hold for a sub-sample of firms for which the decision to use a wire service was likely exogenous. The effect of wire services on investor attention is due to the format of news (electronic and English-language), not to the increased speed of news transmission.
Highlights
A growing body of research suggests that public information does not automatically flow into stock prices
We posit that firms that disseminate news through an English-language wire service obtain greater investor attention, compared with those that release their disclosures in non-electronic form and in a continental European language
Continental European firms that start disseminating their news through English-language wire services experience a smaller stock price drift and a larger abnormal trading volume following earnings announcements
Summary
A growing body of research suggests that public information does not automatically flow into stock prices. We find that after continental European firms start using a wire service, they exhibit a stronger initial reaction to earnings surprises, as well as a lower post earnings announcement stock price drift, compared with when they did not use a wire service to disseminate their news. These firms experience an increase in abnormal trading volume near earnings announcements. Companies that start disseminating news through wires receive more investor attention overall, not just to their earnings news In this view, wire service adoption should lead to a reduction in firms’ expected returns, and increase their relative exposure to global versus stock markets. See “PR Newswire agrees to curb early access for high frequency traders,” Reuters, April 29, 2014
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