Abstract
Holding earnings surprises constant, investors react negatively to delayed earnings announcements. One standard deviation of delay (5 days) corresponds to about 21 bps negative abnormal returns over a two-day announcement window. We show that the results are robust after further controlling for various firm characteristics, earnings characteristics, and the industry effect. We examine alternative explanations, including the earnings manipulation hypothesis proposed in the literature, which suggests that delayed earnings announcements are susceptible to manipulation and are thus discounted by investors. We find no evidence supporting the earnings manipulation hypothesis. Instead, our results are consistent with the effect of concurrent information disclosure. We show that there is a cluster of bad news for late announcements. As investors react to not only a firm’s own announcements but also concurrent earnings announcements, the negative information of concurrent announcements contributes significantly to lower stock returns. In addition, information update by the management and analysts also has a significant effect on market reactions to delayed announcements. In particular, information update by analysts may help the market to incorporate future earnings information more efficiently into stock prices. We show direct evidence that negative market reactions to delayed earnings announcements contain information of future earnings.
Original language | English (US) |
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Pages (from-to) | 977-1014 |
Number of pages | 38 |
Journal | Review of Quantitative Finance and Accounting |
Volume | 58 |
Issue number | 3 |
DOIs | |
State | Published - Apr 2022 |
Externally published | Yes |
Bibliographical note
Funding Information:We wish to thank the Editor (Cheng-Few Lee), an anonymous reviewer, Agnes Cheng, Louis Cheng, Huiwen Lai, Costanza Meneghetti, and seminar participants at the 2020 American Accounting Association Western Reginal Meeting, Hong Kong Polytechnic University, Institute of Financial Studies, The 27th Pasific Basin Annual Conference on Finance, Economics, Accounting, and Management, Washington State University and West Virginia University for helpful comments and suggestions. The usual disclaimer applies.
Publisher Copyright:
© 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.
Keywords
- Concurrent announcements
- Delayed earnings announcements
- Earnings manipulation
- Information update
- Market reactions