Information Content Of Earnings Announcements Research Articles

Not just for investors: The role of earnings announcements in guiding job seekers

We study the information content of earnings announcements and its relevance for job search using detailed search data from half a million anonymous job seekers. We find evidence consistent with job seekers initiating job-search activity in response to a prospective employer's earnings announcements. Job seekers search more intensely for employers with media coverage and earnings growth, consistent with the attention and information roles of earnings announcements. We find corroborating evidence about the usefulness of earnings announcements' financial information content to job seekers: (1) a survey experiment indicates that job seekers are more willing to apply to firms when provided with evidence of positive performance; (2) job seekers search for financial information during applications and interviews; and (3) financial information is predictive of future job prospects, including job openings and career growth. Overall, our paper suggests that earnings announcements—among other sources—prompt and guide job seekers' search activities.

New Evidence on the Information Content of Earnings Announcements for the Swiss Market

A semi-strong efficient market incorporates relevant new information immediately. Using an event study, we investigate whether and to what extent regular earnings announcements of Swiss companies listed on the Swiss Market Index show the expected effects in share prices. For this purpose, we test for abnormal returns caused by earnings announcements in the period from 2012 until 2022. In contrast to previous studies of the Swiss market, we find that deviations from analysts’ expected earnings lead to pronounced immediate movements in stock prices, as predicted by the semi-strong efficient market hypothesis. Pre- and post-announcement abnormal returns are modest and generally not statistically significant.

Valuation Ratios, Surprises, Uncertainty or Sentiment: How Does Financial Machine Learning Predict Returns From Earnings Announcements?

We apply state-of-the-art financial machine learning to assess the return-predictive value of more than 45,000 earnings announcements on a majority of S&P1500 constituents. To represent the diverse information content of earnings announcements, we generate predictor variables based on various sources such as analyst forecasts, earnings press releases and analyst conference call transcripts. We sort announcements into decile portfolios based on the model’s abnormal return prediction. In comparison to three benchmark models, we find that random forests yield superior abnormal returns which tend to increase with the forecast horizon for up to 60 days after the announcement. We subject the model’s learning and out-of-sample performance to further analysis. First, we find larger abnormal returns for small-cap stocks and a delayed return drift for growth stocks. Second, while revenue and earnings surprises are the main predictors for the contemporary reaction, we find that a larger range of variables, mostly fundamental ratios and forecast errors, is used to predict post-announcement returns. Third, we analyze variable contributions and find the model to recover non-linear patterns of common capital markets effects such as the value premium. Leveraging the model’s predictions in a zero-investment trading strategy yields annualized returns of 11.63 percent at a Sharpe ratio of 1.39 after transaction costs.

The earnings announcements consequences in public family firms

This paper investigates market reaction to earnings announcements made by public family firms, to see whether these announcements affect a firm's returns, liquidity or cost of capital. We apply an event study and panel data approach to a sample of Portuguese firms listed between 2000 and 2013. Overall, we find no support for the earnings-signalling hypothesis. Firm size and the fact that a Big-4 company audits a firm contribute positively to the firm performance. The results show no significant relationship between earnings changes and firm liquidity or the weighted average cost of capital and, as such, do not support the pecking order theory. Finally, we find no significant differences between family and non-family firms as regards performance, liquidity and cost of capital. This study is of interest to scholars and practitioners in the field of finance, particularly those focusing on the information content of earnings announcements and the differences between the effects of earnings announcements made by listed family and non-family firms.

Information Content of Earnings Announcements Around IFRS Adoption and a Simultaneous Change in Press Release Disclosure in Italy

This study examines the effect of a security regulation that occurs simultaneously with International Financial Reporting Standards (IFRS) adoption on the information content of earnings announcements in Italy. To identify the effect of this regulation, we use a treatment and a control sample of IFRS countries that vary in the adoption of the security regulation, but are similar along a set of accounting and institutional dimensions (Italy versus France, Belgium, and Portugal). We find that the increase in information content of earnings announcements is more pronounced in Italy (treatment sample). Further, we analyze non-earnings disclosures using 2106 earnings announcements and find that the inclusion of IFRS-based detailed financial statements in earnings announcements contributes to the increased informativeness of IFRS earnings announcements. Our results provide support to the notion that regulatory changes concurrent with IFRS adoption are necessary to yield capital-market benefits.

Consolidated financial reporting and the effect of mandatory IFRS adoption on the information content of earnings announcements: evidence from Korea

ABSTRACT We examine the effect of mandatory IFRS adoption on the information content of earnings announcement in Korea, and its main driving factors. We find an increase in earnings information content with IFRS adoption; however, this increase is only weakly associated with the IFRS reconciliation adjustment, as a proxy for accounting rule differences. In contrast, we observe a strong association between the availability of consolidated financial statements and the increase in information content. Collectively, our analysis contributes to understanding the source of the IFRS effect, by providing new evidence of the crucial role of disclosure policy changes in consolidated reporting. Abbreviation: International Financial Accounting Standards (IFRS).

Information Content of Earnings Announcements: A Different Perspective

Disclosure is of fundamental interest to accounting research. When the sign/magnitude of disclosed news is unclear, research infers the information content of disclosures using the ratio of return volatilities during disclosure event and non-event windows (Beaver, 1968). We show the ratio is associated with error because it also reflects return noise (due to microstructure frictions and mispricing). Much time series and cross-sectional variation in the ratio is due to variation in return noise. We use the exogenous shock to return noise created by the SEC’s Tick Size Pilot program to confirm causality and to evaluate alternative approaches to control for the effect of return noise. The most promising approach is to use the difference, rather than the ratio, of return volatilities during event and non-event windows. We illustrate its benefits by re-examining the evidence relating to the 2004 amendments to Form 8-K filings.

The Information Content of Earnings Following Restatements

This paper examines the information content of earnings following restatements of prior period earnings. Results indicate that the information content of earnings announcements declines in periods following a restatement, but that the loss of information content is temporary. In particular, the earnings response coefficients for earnings announcements surrounding a restatement exhibit a U-shaped pattern in which they return to pre-restatement levels over an average of four quarters, suggesting that the market's concern regarding subsequently reported earnings is somewhat transitory. The extent to which the earnings of restatement firms suffer a loss of information content varies across several dimensions. First, the loss of information content is greater for firms that restate earnings to correct revenue recognition errors than it is for other types of restatements. Second, the information content of earnings is significantly lower for firms that do not make changes to their financial reporting governance structure following a restatement relative to firms that initiate governance changes. Overall, the evidence presented in this paper is consistent with a short-term decline in investor confidence regarding financial reporting following restatements, but that recovery typically takes place within four quarters.

Audit committees’ independence and the information content of earnings announcements in Western Europe

We examine whether the percentage of independent members sitting on the audit committee, in different institutional settings, impacts the market reaction (measured by the abnormal stock returns variance and the abnormal trading volume) to earnings announcements. For our sample composed of more than 7′600 earnings announcements made by European firms from 15 countries between 2006 and 2014, we find that the market reactions to earnings announcements are significantly larger when the audit committee is more independent in countries with weak institutional setting. Our results generally hold after controlling for numerous methodological issues. We conclude that more independent audit committees are substitutes for weak institutions to increase the credibility of earnings announcements. Our results should be of great interest for European regulators who recently introduced new requirements for public firms regarding audit committees’ independence.

실적공시예고와 이익공시일의 시장반응

실적공시예고와 이익공시일의 시장반응

The information content of earnings announcements: new insights from intertemporal and cross-sectional behavior

This study examines the information content of quarterly earnings announcements, measured as the magnitude of stock price revision at earnings announcements relative to price revision at other times. We investigate whether quarterly earnings announcements are informative using a nonparametric approach and 1971–2011 sample period. The findings affirm prior evidence on earlier sample periods that significantly more information is conveyed to investors in the three days around earnings announcements than in randomly chosen three-day periods. Next, we examine the behavior of information content over our sample period and document four key findings. First, there is a dramatic increase in information content at earnings dates from 2001 onward. Second, the market reaction to loss firms is substantially less than that for profitable firms. Third, there is a significantly greater reaction to larger firms. Fourth, reaction at earnings dates is significantly increasing in analyst coverage, and once analyst coverage is controlled, the association with size becomes less significant.

The Information Content of Earnings Announcements in Newly Public Firms (WITHDRAWN)

This study examines whether the Jumpstart Our Business Startups Act (JOBS Act) had any effect on the information content of earnings in newly public firms. The Act relaxes certain disclosure and re...

Audit quality during the global financial crisis: The investors’ perspective

In response to the concerns raised by the financial media and regulators about the audit quality around the recent global financial crisis (GFC), this study examines whether investors also perceived the audit quality to have declined during the GFC. Based on a sample of US firms over 2003–2009 and using the information content of earnings announcements as the proxy for the investors’ perception of the audit quality, we find evidence of an increase in the information content of earnings announcements during the GFC period compared to pre-GFC period. The subsample analysis shows an increase in the information content of earnings announcements for both the non-financial and financial firms. Our results also show that the increase in the information content of earnings announcements is not dependent on auditors’ size (Big 4 versus non-Big 4 auditors) or auditors’ independence (based on the level of audit, non-audit and total audit fee). Additional tests also reveal that the reported increase in the information content of earnings announcements are not driven by a general decline in the richness of information environment during the GFC. Overall, our results provide a strong evidence of an increase in the perceived quality of audits during the GFC for US firms non-financial and financial firms.

Increased Information Content of Earnings Announcements in the 21st Century: An Empirical Investigation

We examine the role of concurrent information in the striking increase in investor response to earnings announcements from 2001 to 2016, as measured by return variability and volume following Beaver (1968). We find management guidance, analyst forecasts, and disaggregated financial statement line items are more frequently bundled with earnings announcements, and each of these items explains part of the increase in market response. Furthermore, collectively, these concurrent information releases explain a substantial fraction of the increase in market response to earnings announcements since 2001. This is in contrast to the decline in market response to management guidance issued separately from earnings and the much smaller increase in market response to analyst forecasts issued separately from earnings over this time. The findings indicate that information arrival at earnings announcement dates has increased significantly over the past two decades, and that key components of this are increased disclosures by management and forecasts by analysts.

Information Content of Earnings Announcements Around IFRS Adoption and a Simultaneous Change in Press Release Disclosure in Italy

Information Content of Earnings Announcements Around IFRS Adoption and a Simultaneous Change in Press Release Disclosure in Italy

The Information Content of Earnings Announcements: New Insights on Intertemporal and Cross-Sectional Behavior

This study examines the information content of quarterly earnings announcements, measured as the magnitude of stock price revision at earnings announcements relative to price revision at other times. We investigate whether quarterly earnings announcements are informative using a nonparametric approach and 1971-2011 sample period. The findings provide unequivocal evidence that significantly more information is conveyed to investors in the three days around earnings announcements than in randomly chosen three day periods. Furthermore, we find that information content increases over time and dramatically so from 2001 onward. In addition, we investigate cross-sectional variation in the information content of earnings announcements and find it is positively associated with profitability, firm size and analyst coverage.

Corporate Governance and the Information Content of Earnings Announcements: A Cross‐Country Analysis

AbstractUsing firm‐level data from 23 developed markets, we document a positive association between overall firm‐level governance quality and the informativeness of earnings announcements measured by abnormal stock return variance. This finding is robust after controlling for the potential endogeneity of firm‐level corporate governance. Further analyses reveal that firms with strong governance show little evidence of earnings management, appoint Big 4 auditing firms, and attract analyst following, implying a positive link between strong corporate governance and the information quality of earnings announcements. Finally, there is some evidence that the relation between firm‐level governance and market reactions around the announcements exists only in countries characterized by a transparent information environment and strong legal investor protection.

Do IFRS‐Based Earnings Announcements Have More Information Content than Canadian GAAP‐Based Earnings Announcements?

AbstractUsing an event‐study methodology, this study investigates whether the information content of earnings announcements changed for firms traded on the Toronto Stock Exchange (TSX) and the Canadian Venture Exchange (TSXV) following mandatory adoption of International Financial Reporting Standards (IFRS) in Canada. A priori, it may be argued that the information content of earnings would increase for both TSX and TSXV firms if IFRS earnings provided more value‐relevant information than Canadian GAAP earnings. Increased value relevance of information provided by IFRS earnings would likely reflect increased measurement of changes in net asset values based on expectations as opposed to realizations. Because values based on expectations are subject to greater divergence of opinion than values based on realizations, greater value relevance is likely to be accompanied by higher abnormal return volatility and abnormal trading volume during announcement periods. Consistent with this argument, we find that abnormal volatility and abnormal volume during earnings announcement periods were higher in post‐IFRS announcement periods than in pre‐IFRS announcement periods for firms traded on the TSX. We discriminate across the two exchanges in terms of information quality based on the mix of institutional and retail investors, analyst following, concentration in the oil, gas and mining sectors, and size of firm. We test for a residual difference in information content based on the more speculative nature of the TSXV exchange and find some evidence that divergence of opinion was higher for TSXV firms than TSX firms in the pre‐IFRS period but this residual difference does not carry through to the post‐IFRS period.

The Impact of Accounting Disclosures and the Regulatory Environment on the Information Content of Earnings Announcements

We investigate how accounting standards and the regulatory environment influence the usefulness of accounting information. Prior research finds no market reaction to earnings announcements in Mexico during the late 1990s. However, beginning in 1999, a series of regulatory changes required firms' compliance with a governance code and mandated electronic quarterly reporting. Additionally, in 2007 Mexico reissued their accounting standards to converge toward IFRS. We hypothesize that the market reacts to earnings announcements following the implementation of these changes in the reporting environment. Our results support our hypothesis. We also hypothesize and find evidence of a price reaction to earnings announcement for most share classes, and a volume reaction to earnings announcements for all share classes. Finally, we find support for our hypothesis that the firm's information environment affects the market reaction to earnings announcements. Overall, our findings suggest that the information content of earnings announcements has increased in the new reporting environment.

English

This study examines the implications of changes in dividends in the market of Kingdom of Saudi Arabia (KSA). First, the research analyzes changes in dividends within the context of signaling hypothesis. Second, this study examines another aspect of signaling hypothesis by testing the abilities of dividends to predict future earnings and cash flows of Saudi firms. Financial economists have explored various aspects of changes in dividends and earnings for well developed markets such as markets of North America and Europe. The objective of this study is to see how the signaling hypothesis manifests itself in a small market, such as KSA, characterized by concentrated family-ownerships, non-taxability of dividends, and high degree of information asymmetry. Signaling hypothesis, initially formulated by Miller and Modigliani (1961), suggests that dividend changes convey material information and that share prices react positively to the announcements of dividend changes. Signaling hypothesis was further generalized to include other factors such as the information content of earnings announcements. Further development of the signaling hypothesis includes the association between dividend and earnings changes and future cash flows of the firms. In this context, we hypothesize that there is a positive relationship between dividend announcement and stock prices in the Saudi market. This study tests this hypothesis using all publicly traded firms listed on the Saudi Exchange Market (Tadawul). We use event study to test stock market responses to dividend announcements. To test the signaling hypothesis we used our cross section data to calculate accumulated average abnormal returns using 100 days as estimation period and 21 days as window period. We used parametric CAAR t test) and non-parametric (G sign) significance tests to verify that our results are significant and not due to pure chance. Our results show no significant reaction of prices to the dividend announcements, which means that signaling hypothesis cannot be generalized to all types of markets and that each market own characteristics have significant effect on the applicability of the signaling hypothesis. Further research is suggested to include earnings in the analysis.