The Changing Nature of Trading Volume Reactions to Earnings Announcements: Further Evidence of an Increase in Pre-Announcement Private Information

43 Pages Posted: 9 May 2008

See all articles by Richard A. Schneible Jr.

Richard A. Schneible Jr.

State University of New York (SUNY) at Albany

Douglas E. Stevens

Georgia State University - Robinson College of Business

Date Written: April 18, 2008

Abstract

We document a change in the nature of trading volume reactions to quarterly earnings announcements over the time period 1976-2005. Consistent with Landsman and Maydew (2002), we find that the magnitude of abnormal trading volume around quarterly earnings announcements has increased over time and that this increase is greater for large firms than small firms. We show, however, that this trend has reversed the negative relation between firm size and trading volume documented by Bamber (1987). Applying insights from recent trading volume theory, we predict and provide evidence that the increase in abnormal trading volume across time and firm size is due to increases in pre-announcement private information. Specifically, we show that the component of abnormal trading volume associated with price change, which theory suggests reflects pre-announcement private information, is increasing across time and firm size. Our results suggest that investors are motivated to acquire private information prior to earnings announcements about firms that have relatively high quality information environments. Thus, our results have implications for policies aimed at reducing information asymmetry between investors by increasing public disclosure.

Keywords: Trading volume reactions, Earnings announcements, Time trend effects, Firm size, Pre-announcement private information

JEL Classification: D82, G14, M41

Suggested Citation

Schneible, Richard and Stevens, Douglas E., The Changing Nature of Trading Volume Reactions to Earnings Announcements: Further Evidence of an Increase in Pre-Announcement Private Information (April 18, 2008). Available at SSRN: https://ssrn.com/abstract=1131393 or http://dx.doi.org/10.2139/ssrn.1131393

Richard Schneible (Contact Author)

State University of New York (SUNY) at Albany ( email )

Albany, NY 12222
United States

Douglas E. Stevens

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

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