Voluntary Disclosures in Earnings Announcements and Coincident Market Reactions

Abstract

This study examines the relation between supplemental voluntary disclosures in firms' earnings announcements and the market reactions to these announcements. We find that abnormally high trading volume around earnings announcements is associated with disclosure of balance sheets, segment reports, range forecasts, and length of conference calls. We show that these trading volume findings can be explained by the relation between voluntary disclosures and disagreement measures developed by Kandel and Pearson (1995), Barron (1995), and Barron, Kim, Lim, and Stevens (1998) - disagreement measures already shown both theoretically and empirically to explain trading volume around earnings announcements (see Holthausen and Verrecchia 1990; Kandel and Pearson 1995; Kim and Verrecchia 1997; Bamber, Barron, and Stober 1997 and 1999; Barron, Harris, and Stanford 2005). In contrast to this trading volume evidence, we find that only balance sheet disclosures have a statistically significant positive association with the magnitude of price reactions. This increases understanding of why Cready and Hurrt (2002) observe trading volume reactions around earnings announcements more often than price reactions, because several types of concurrent voluntary disclosures spur abnormal trading that does not coincide with significant price reactions.