Time Of Earnings Announcements Research Articles

The Determinants and Information Effects of Earnings Announcement Date Variability

Prior research finds mixed evidence that firms strategically manage their earnings announcement timing to either highlight or obscure financial information. While most prior studies focus on the specific timing and the nature of individual earnings announcements, we instead focus on the variability of firms’ annual earnings announcement dates (hereafter referred to as EADs) over a span of time. Using archival data collected from I/B/E/S and Compustat, we find that firms with fewer resources, weaker internal monitoring systems, and greater financial uncertainty are much more likely to exhibit increased EAD variability. Furthermore, we provide substantial evidence that the capital market’s response to earnings is noticeably weaker when a firm’s EAD variability is higher. Additional in-depth analysis reveals that firms exhibiting higher EAD variability tend to report significantly lower future performance in both the short- and long-term horizons. Consequently, while managers might intentionally alter an earnings announcement date to exploit variations in investor attention, this comprehensive study provides significant evidence that they should also consider how the market perceives and interprets the overall EAD variability. This understanding is crucial to improve strategic financial communication and maintain investor trust.

Asymmetry, earnings announcements, and the beta-return relation

We find that the beta–return relationship is asymmetric around earnings announcements. The security market line has a positive slope in the days leading up to earnings announcements, but a negative slope in the days that follow. This striking shift in the risk–return trade-off is driven primarily by high-beta stocks. Moreover, a modified conditional market-timing beta strategy, incorporating the timing of earnings announcements, enhances profitability. Overall, the results lend empirical support to the theoretical predictions of Hong and Sraer (2016), which posit that beta amplifies disagreements regarding the stock market's prospects.

Earnings Announcement Content as a Signal of Reliability

We extend literature on the timing and quantitative content of earnings announcements (EAs), and consider whether managers use qualitative characteristics to relate the reliability of earnings information, relative to audit completion. We also examine if qualitative differences in EAs moderate investor reactions to the EA. Assessing the linguistic content of EA disclosures for uncertainty and readability on a sample of firms from 2004 to 2020, we hypothesize and find that EAs released early relative to audit completion convey lower reliability, measured by more uncertain and less readable language. For firms that do release early, the more uncertain and less readable the EA is the earlier they release. We also predict that such information is a more reliable, optimistic signal of future operations, and that a prior accounting restatement will increase uncertainty in EAs. We find that firms that restate financial reports from the prior year use more uncertain and less readable language in current year announcements. Finally, we examine the relevance of more or less certainty and readability through investor responses to EAs. When earnings news is unexpectedly good, there is a larger positive market response to earnings when those EAs use more certain and readable language. When the news is unexpectedly bad, there is a more negative market response to earnings when those EAs use more certain and readable language.

Earnings Announcement Timing in Selected Equity Markets

Earnings Announcement Timing in Selected Equity Markets

Bank Monitoring Prevents Managerial Procrastination: Evidence from the Timing of Earnings Announcements

I examine the role of bank monitoring in the timing of earnings announcements. Managers have been shown to procrastinate and delay the public release of bad news on earnings. I find that banks discipline and prevent such managerial procrastination of earnings disclosures to the public. Moreover, I find that the market is more tolerant of delays in the public release of earnings information in the presence of a bank lending relationship. Thus, the negative abnormal return accompanying late releases of earnings information is observed only when a bank lending relationship is not present.

Strategic Earnings Announcement Timing and Fraud Detection

Strategic Earnings Announcement Timing and Fraud Detection

Is Audit Committee Power Associated with Audit Completeness and Earnings Announcement Timing?

SYNOPSISCompanies are increasingly disclosing earnings announcements prior to the completion of the year-end audit. Earnings that are released before the audit is complete are viewed negatively by investors and are positively associated with restatements and management turnover. We examine the role of the audit committee in the timing of earnings announcements. We predict and find that more powerful audit committees are positively associated with earnings announcements issued closer to audit completion. For observations with incomplete audits, we find that more powerful audit committees are negatively associated with restatements. Finally, more powerful audit committees are associated with delays in the earnings announcement. Our primary results are robust to the use of an entropy-balanced control sample and company fixed effects. These results indicate that audit committees play a role in earnings announcement timeliness and reliability, and have implications for researchers, investors, and regulators.Data Availability: The data used in this paper are publicly available from the sources indicated in the text.JEL Classifications: M40; M42.

The Effect of Institutional Ownership on the Timing of Earnings Announcements: Evidence from the Russell Index Inclusion

Using the annual Russell 1000/2000 index reconstitution as an exogenous shock to institutional ownership (IO), I examine the effect of IO on firms’ decisions regarding the time of day to announce earnings. I argue that firms with high IO strategically choose to announce earnings after hours to facilitate post-announcement price discovery and reduce volatility because the after-hours period is largely dominated by sophisticated institutional investors. I find that firms with greater IO are more likely to announce earnings during after-market sessions (i.e., after hours after the market closes), but not during premarket sessions (i.e., after hours before the market opens). My analysis further shows that transient IO has a stronger influence on the likelihood of after-market announcements relative to quasi-indexer or dedicated institutional holdings and that firms with high IO are even more likely to announce during after-market sessions when firms have bad earnings news or when earnings include large transitory items. Lastly, I find that announcing earnings during after-market sessions indeed facilitates post-announcement price discovery and reduces volatility for firms with high IO. Collectively, my findings suggest that IO is a significant factor in firms’ disclosure timing decisions and that the timing of disclosures affects price discovery and volatility.

Earnings announcement timing, uncertainty, and volatility risk premiums

AbstractWe examine the relationship between firms’ quarterly earnings report timing and uncertainty before quarterly earnings announcements. Prior research provides conflicting predictions on how investor uncertainty and report timing are related. Using implied volatilities from equity options and the realized returns to straddle positions, we find evidence that uncertainty and volatility risk premiums are higher for firms that report later in the quarter. Further tests show that the increase in option premiums is unexplained by risk factors suggesting a mispricing by investors. These results are not associated with static firm‐level factors and our findings are concentrated in high growth firms.

Earnings Announcement Timing, Uncertainty, and Volatility Risk Premiums

We examine the relationship between firms’ quarterly earnings report timing and uncertainty before quarterly earnings announcements. Prior research provides conflicting predictions on how investor uncertainty and report timing are related. Using implied volatilities from equity options and the realized returns to straddle positions, we find evidence that uncertainty and volatility risk premiums are higher for firms that report later in the quarter. Further tests show the increase in option premiums is unexplained by risk factors suggesting a mispricing by investors. These results are not associated with static firm-level factors and our findings are concentrated in high growth firms.

Does earnings surprise determine the timing of the earnings announcement? Evidence from earnings announcements of Indian companies

PurposeThe purpose of this study is to investigate whether the earnings surprise influences decision to make earnings announcements during or after the trading hours is influenced by the earnings surprise resulting from the difference between consensus earnings estimates and the actual reported earnings.Design/methodology/approachEvent study methodology was employed to test the hypotheses relating to earnings surprise and timing of earnings announcements. Twelve quarterly earnings announcements of 30 companies, drawn from BSE SENSEX of India, were studied to test the hypothesized relationships.FindingsThe study has found statistically significant differences in the market responses to the earnings announcements made during and after the trading hours. The market demonstrated a negative response to the earnings announcements made after the trading hours. Further, the results of the logistic regression have shown that the presence of significant earnings surprises is likely to induce firms to make earnings announcements after the trading hours. The results indicate that those firms that intend to reduce the overreaction and underreaction to earnings surprises are likely to make earnings announcements after the trading hours.Originality/valueThis paper highlights the market response to the earnings announcement made during and after the regular trading hour. Further, the paper examines if the earnings surprise influences the decision to announce the results.

Joint Analysis of Corporate Decisions on Timing and Medium of Earnings Announcements: Evidence from Korea

ABSTRACT This study comprehensively investigates the management’s strategic behaviors in determining the timing and the disclosure medium for earnings announcements, utilizing the empirical setting in Korea. This study finds that firms tend to release bad earnings news on a delayed basis, without voluntary disclosure of preliminary earnings, on Friday or weekdays just before a holiday and during after-market hours, respectively. More importantly, firms employ multiple earnings announcement strategies jointly in a way to increase the number of strategies to hide earnings news as the earnings performance deteriorates. Further, there is evidence that the earnings announcement strategies are generally effective in avoiding or attracting the market attention as anticipated. Overall, this study provides new evidence supporting the managerial opportunism in earnings announcements by demonstrating that firm managers deliberately organize multiple options for announcements to maximize the possibility of adjusting the market attention for their purposes.

How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

ABSTRACT Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers. Data Availability: Contact the authors.

The Effect of Regulation on the Timeliness and Informational Role of Earnings Announcements

ABSTRACTThis paper examines the effect of regulations (i.e., the Sarbanes‐Oxley Act and Regulation G) on both the timing of earnings announcements and their relative informational role. I find that after the regulation of earnings announcements was instituted, firms began issuing less timely earnings announcements, and those announcements have become more important for shareholders. Ceteris paribus, after the regulations, firms have disclosed their fiscal year‐end announcements more than four days later than they had prior to regulatory changes. My results are robust to sensitivity analyses that control for concurrent earnings announcement disclosures and other changes instituted by the Sarbanes‐Oxley Act. Further, I find evidence suggesting that the relative informational role of earnings announcements has increased significantly in the post‐regulation period. This study highlights a shift in both the timeliness and investor perceptions of earnings announcements spurred by the implementation of regulatory oversight, indicating a trade‐off of timeliness for relevance.

Benchmark for Earnings Performance: Management Forecasts Versus Analysts' Forecasts

We investigate the incremental information conveyed by management forecast errors over and above the consensus analyst forecast error at the time of earnings announcement. To the extent that analysts rationally revise their forecasts to subsume information contained in management releases, it is reasonable to argue that management forecasts are dated and that the revised analyst forecasts would constitute the more timely benchmark to evaluate performance. We find that when management guidance appears to be unsuccessful, management forecast errors convey information to the stock market that is not reflected in the consensus analyst forecast error. In contrast, we do not find that management forecast errors convey additional information over and above the consensus analyst forecast error when management guidance appears to be successful. JEL classification : G14, G24, G29, M41

Earnings Announcement Lags and Market Responses—Does the Tone of the News and the Market Sentiment Matter?

ABSTRACTWe investigate earnings announcement lags (period from the end of the reporting period until the announcement date) for the good and the bad quarterly earnings news across different market sentiment periods as well as market reactions thereto. Companies listed on Baltic stock exchanges exhibit clear signs of strategic timing of earnings announcements. Earnings announcement lags for the bad news tend to be longer than those for the good news. This difference is more pronounced during low market sentiment periods. If the release of the bad news is postponed, abnormal return responses remain lower, as expected.

The Strategic Responses from Sophisticated Investors to Inaccurate Forecast of Financial Analysts

We examine whether there are more information based trading activities that are generated around the time of earnings announcements. We distinguish between the influence of information based traders, especially short sellers, and market information quality through the reaction of participants to new information derived from corporate earnings announcements. We find that informed traders do take advantage of overpriced stocks, and do short stocks before the confirmation of past expectations of future cash flows from corporates. We apply Standardized Unexpected Earnings (SUE) in the method and our result indicates that informed traders are more likely to take advantage of overpriced stocks, using a tool (shorting) that is not traditionally used by unsophisticated investors. We also demonstrate an unique finding that informed traders follow stock analysts not for investing advice, but to take advantage of those unsophisticated investors that buy in to the rhetoric expressed by financial analysts.

The Timing of Earnings Announcements and Volatility

The vast majority of U.S. public firms announce earnings in the post-close (between the closing bell and midnight, or PC) or the pre-open (between midnight and the opening bell, or PO). Prior literature generally treats PC and PO announcements as equivalent when measuring the market reaction to the announcement. In this study, we provide a model of investor processing of earnings announcements and hypothesize that PO announcements have a slower market reaction to the earnings news than PC announcements. This differential speed of the market reaction is because PC announcements offer investors more time to process and trade on the earnings news before regular trading begins. We find strong empirical evidence that, although the earnings news and cumulative market reaction does not differ between PC and PO announcements, PO announcements incorporate earnings news more slowly in the days after the announcement than PC announcements.

Does High‐Quality Auditing Mitigate or Encourage Private Information Collection?

AbstractThe finance literature offers two competing possibilities on how investors respond to the quality of public financial statements in their pricing decisions. They could collect either (i) more private information to benefit from lower information collection cost, or (ii) less private information because of lower incremental benefits. In this paper, we use the audit setting to examine which possibility prevails. Using the idiosyncratic return volatility as a proxy for firm‐specific information, we show in a sample of 51,559 firm‐year observations for 8,261 U.S. firms spanning the period of 2000–2010 that firms audited by higher‐quality auditors exhibit lower average idiosyncratic return volatility but a higher concentration of it at the time of earnings announcements. Our findings are consistent with the argument that investors reduce private information collection in response to higher audit quality. Our findings are robust to alternative measures of audit quality and idiosyncratic return volatility.

How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers.