How Important are Earnings Announcements as an Information Source?

40 Pages Posted: 29 May 2010 Last revised: 4 Nov 2015

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Truong X. Duong

Iowa State University - Department of Accounting and Finance

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Eng-Joo Tan

Singapore Management University - Lee Kong Chian School of Business

Date Written: February 14, 2013

Abstract

In a competitive information market, a single information source can only dominate other sources individually, not collectively. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar’s (2008) R2 metric: the proportion of the variation in annual returns explained by the four quarterly earnings announcement returns. We find that the earnings announcement days’ R2 is 11 percent — higher than the corresponding R2 of days with dividend announcements, management forecasts, preannouncements, 10-K and 10-Q filings, and their amendments, and comparable to that of the four days with largest realized absolute return in a year. Additional analysis reveals that earnings announcements convey extreme bad news as often as management forecasts and preannouncements; for any other type of news earnings announcements are much more frequent. We conclude that earnings announcements are an important source of new information in the equity market.

Keywords: earnings information arrival days, conditional information content, information monopoly, incremental information

JEL Classification: D4, D83, G14, L11, M4

Suggested Citation

Basu, Sudipta and Duong, Truong X. and Markov, Stanimir and Tan, Eng-Joo, How Important are Earnings Announcements as an Information Source? (February 14, 2013). European Accounting Review Vol. 22, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=1616466 or http://dx.doi.org/10.2139/ssrn.1616466

Sudipta Basu

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Truong X. Duong

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

Eng-Joo Tan (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Register to save articles to
your library

Register

Paper statistics

Downloads
616
rank
41,260
Abstract Views
2,838
PlumX Metrics