Limited Attention and Stock Price Drift Following Earnings Announcements and 10-K Filings

52 Pages Posted: 19 Sep 2009

See all articles by Haifeng You

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Xiao-Jun Zhang

University of California, Berkeley; China Academy of Financial Research (CAFR)

Date Written: September, 18 2009

Abstract

Earnings announcements and 10-K filings are two important channels through which companies release financial information to the public. Earnings announcements, particularly for large firms, are often accompanied by intensive media coverage. In contrast, 10-K filings are usually of much lower profile, attracting little investor attention. Limited attention hypothesis suggests that investors’ failure to devote enough attention to an economic event leads to underreaction, and the degree of underreaction should decrease with the amount of investor attention. In this paper we document evidence consistent with this hypothesis. First, we show that among large firms, investors under-react more to the information contained in 10-K filings than earnings announcements. Second, underreaction to earnings announcements tends to be stronger for small firms than large firms. In contrast, investor underreaction to 10-K information is similar between the two groups of firms. Third, we find that companies report their earnings and 10-Ks earlier when there is a higher demand for such information, and document a negative relationship between the degree of underreaction and the timeliness of such information release. Finally, we show that the recent ruling by SEC to accelerate 10-K filing has little impact on the degree of investors’ underreaction to 10-K information.

Keywords: stock price drift, earnings, 10-K, limited attention

Suggested Citation

You, Haifeng and Zhang, Xiao-Jun, Limited Attention and Stock Price Drift Following Earnings Announcements and 10-K Filings (September, 18 2009). Available at SSRN: https://ssrn.com/abstract=1475479 or http://dx.doi.org/10.2139/ssrn.1475479

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

Xiao-Jun Zhang (Contact Author)

University of California, Berkeley ( email )

545 Student Services Building
SPC 1900
Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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