The Materiality of Earnings Surprise

48 Pages Posted: 9 Aug 1999

See all articles by William R. Kinney, Jr.

William R. Kinney, Jr.

University of Texas at Austin - Department of Accounting

David Burgstahler

University of Washington

Roger D. Martin

University of Virginia - McIntire School of Commerce

Date Written: July 8, 1999

Abstract

This study uses First Call Corp. earnings surprise data and market-adjusted stock returns for the seven-day period surrounding each of about 22,000 annual earnings announcements from 1992-1997 to address several questions recently posed by SEC officials. We find that mean and median stock returns of portfolios ranked on earnings surprise magnitudes typically have the same sign as the surprise, but have the opposite signs for about 45% of observations comprising each portfolio. We also find that for a given absolute surprise magnitude, absolute price response is inversely related to the dispersion of analysts' forecasts.

JEL Classification: G14, M41

Suggested Citation

Kinney, William and Burgstahler, David C. and Martin, Roger Dean, The Materiality of Earnings Surprise (July 8, 1999). Available at SSRN: https://ssrn.com/abstract=170560 or http://dx.doi.org/10.2139/ssrn.170560

William Kinney (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-471-3632 (Phone)
512-471-3904 (Fax)

David C. Burgstahler

University of Washington ( email )

555 Paccar Hall, Box 353226
Seattle, WA 98195-3226
United States
206-543-6316 (Phone)
206-685-9392 (Fax)

Roger Dean Martin

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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