Are earnings predictable? Evidence from equity issues and buyback announcements
36 Pages Posted: 6 Apr 2015 Last revised: 24 Sep 2018
Date Written: September 11, 2018
We find that earnings announcements that follow equity issues and buyback announcements have predictable market reactions. Four-factor abnormal returns to earnings following buyback announcements are higher by 5.1% than similar returns to earnings following equity issues over the (-1, 30) window; the difference is 2.2% when unadjusted returns are used. The drift in these returns is unrelated and distinct from the post-earnings announcement drift, and less affected by benchmarking issues that may influence long-horizon returns. The evidence is consistent with the notion that markets do not fully reflect information that is embedded in voluntary corporate actions.
Keywords: Earnings predictability, repurchases/buybacks, equity issues, SEOs, information asymmetry, market efficiency
JEL Classification: G14, G32, G35
Suggested Citation: Suggested Citation