Firm-specific Information Processing and the Delayed Discovery of Macroeconomic News: Evidence from Earnings Announcement Returns

Analyzing a panel of earnings announcers from 1998-2022, we document that the aggregate market return on quarterly earnings announcement dates is positively associated with the announcing firm’s 3-day abnormal returns following the announcement. This phenomenon is strongest for firms with extreme earnings surprises and is no longer significant by day 7, indicating a short-lived delay in incorporating the aggregate return from the announcement date. We also document a sluggish return response for earnings announcing firms to same-day macro news disclosures, where this effect is also moderated by extreme earnings. Our findings are more pronounced when investors exert more effort in acquiring announcing firm information, as measured by SEC EDGAR filing downloads, when macro-news has a larger impact on a firm’s stock returns, for smaller firms facing higher costs of information processing, and when investors are more constrained in attention and processing capacity, as proxied by retail trading activities. Overall, findings support the notion that investors have finite information processing capacity and that intensive efforts to acquire firm-specific earnings news impede the timely incorporation of macroeconomic news into prices.

Keywords: Earnings Announcements, Information Processing, Investor Neglect, Limited Attention, Market Efficiency, Asset Pricing

JEL Classification: G12, G40, M41

Suggested Citation: Suggested Citation

Pan, Jing and Sul, Edward and Wang, Sean, Firm-specific Information Processing and the Delayed Discovery of Macroeconomic News: Evidence from Earnings Announcement Returns (May 23, 2024). SMU Cox School of Business Research Paper No. 24-5, Accepted at Review of Accounting Studies, Available at SSRN: https://ssrn.com/abstract=4839711 or http://dx.doi.org/10.2139/ssrn.4839711