Are Earnings Predictable? Evidence from Equity Issues and Buyback Announcements

Journal of Economics and Finance, Forthcoming

37 Pages Posted: 6 Apr 2015 Last revised: 2 Jan 2020

See all articles by Shahram Amini

Shahram Amini

University of Denver - Daniels College of Business

Vijay Singal

Virginia Tech

Date Written: November 5, 2019

Abstract

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 evidence is consistent with the notion that markets do not fully reflect information that is embedded in voluntary corporate actions. The drift in these returns is unrelated and distinct from the post-earnings announcement drift. For example, we find positive drift for firms making buyback announcements even when they exhibit negative earnings surprises and find negative drift for firms issuing equity even when they show positive earnings surprises. Since the study looks at short periods around earnings announcements, it does not suffer from benchmarking errors that may influence long-horizon returns.

Keywords: Earnings Predictability, Repurchases/Buybacks, Equity Issues, SEOs, Information Asymmetry, Market Efficiency

JEL Classification: G14, G32, G35

Suggested Citation

Amini, Shahram and Singal, Vijay, Are Earnings Predictable? Evidence from Equity Issues and Buyback Announcements (November 5, 2019). Journal of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2589966 or http://dx.doi.org/10.2139/ssrn.2589966

Shahram Amini (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd.
Denver, CO 80208
United States

HOME PAGE: http://daniels.du.edu/directory/shahram-amini/

Vijay Singal

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

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