How Do Investors Interpret Announcements of Earnings Delays?

Abstract

We documented that announcements of a delay in the reporting of earnings produce an average one-day abnormal stock return of approximately -6%, with delays precipitated by accounting issues or lacking an explanation resulting in more negative market reactions than delays relating to business events, implementation of new accounting standards, or non-business reasons such as bad weather. Our market reaction findings continued to hold after we controlled for contemporaneous management guidance, timing of the delay announcement, materiality of any accounting issues, and richness of the information environment. Lastly, we showed that the market reaction to earnings delay announcements is consistent with these disclosures signaling deteriorating financial performance.