Earnings Characteristics and Analysts’ Differential Interpretation of Earnings Announcements: An Empirical Analysis

24 Pages Posted: 20 May 2009

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Minsup Song

Sogang University

Douglas E. Stevens

Georgia State University - Robinson College of Business

Abstract

This study provides empirical evidence on factors that drive differential interpretation of earnings announcements. We document that Kandel and Pearson's forecast measures of differential interpretation are decreasing in proxies for earnings quality and pre-announcement information quality. This evidence yields new and useful insights regarding which earnings announcements are less likely to generate newfound disagreement among analysts and investors. Recent research suggests that investor disagreement can increase investment risk, increase the cost of capital, and cause stock prices to deviate from fundamental value. Therefore, our results support prior intuition that increasing the quality of earnings and pre-announcement information can improve the efficiency of capital markets.

Suggested Citation

Ahmed, Anwer S. and Song, Minsup and Stevens, Douglas E., Earnings Characteristics and Analysts’ Differential Interpretation of Earnings Announcements: An Empirical Analysis. Accounting & Finance, Vol. 49, No. 2, pp. 223-246, June 2009. Available at SSRN: https://ssrn.com/abstract=1407301 or http://dx.doi.org/10.1111/j.1467-629X.2008.00292.x

Anwer S. Ahmed (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Minsup Song

Sogang University ( email )

Palaus Hall 802, Sogang Business School
1 Shinsoo-Dong, Mapo-Gu
Seoul
Korea, Republic of (South Korea)
82-2-705-8855 (Phone)

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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