How Do Investors Interpret Announcements of Earnings Delays?

10 Pages Posted: 5 Apr 2013

See all articles by Tiago Duarte‐Silva

Tiago Duarte‐Silva

affiliation not provided to SSRN

Huijing Fu

Texas Christian University

Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management

K. Ramesh

Rice University

Date Written: Winter 2013

Abstract

Unlike in the case of delays of 10‐K or 10‐Q filings, the SEC does not require managers to disclose delays of earnings announcements to the public. Thus, for companies that are unable to report earnings by their expected date, managers face a decision: remain silent or announce the delay. Prior research has investigated all earnings delays, whether or not they are accompanied by announcements of the delay announcement, and found that the market reaction is slightly negative, on average, for companies that allow their expected earnings dates to pass without disclosing results. It's not clear, however, whether this negative reaction was due to the absence of news or to the information contained in the announcements of the earnings delays. The authors' recent study documents that earnings delay announcements are associated with an average one‐day abnormal stock return of a negative 6%. This statistically as well as economically significant reduction in value is consistent with anecdotal evidence in the popular business press as well as predictions of disclosure theories, in particular the explanation that concerns about legal liability and managerial reputation motivate managers to disclose bad news. The study also shows that almost all managers who announce earnings delays attempt to influence the market reaction by disclosing the underlying cause. Finally, the study shows that the market reaction to earnings delay announcements is positively related to future earnings changes, consistent with the role of these disclosures in providing a signal of deteriorating financial performance.

Suggested Citation

Duarte‐Silva, Tiago and Fu, Huijing and Noe, Christopher F. and Ramesh, K., How Do Investors Interpret Announcements of Earnings Delays? (Winter 2013). Journal of Applied Corporate Finance, Vol. 25, Issue 1, pp. 64-71, 2013. Available at SSRN: https://ssrn.com/abstract=2245436 or http://dx.doi.org/10.1111/j.1745-6622.2013.12007.x

Tiago Duarte‐Silva (Contact Author)

affiliation not provided to SSRN

No Address Available

Huijing Fu

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-7148 (Phone)
817-257-7227 (Fax)

Christopher F. Noe

Massachusetts Institute of Technology - Sloan School of Management ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

K. Ramesh

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

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