Firm Complexity and Post-Earnings-Announcement Drift

65 Pages Posted: 29 Nov 2013 Last revised: 2 Dec 2018

See all articles by Alexander Barinov

Alexander Barinov

University of California Riverside

Shawn Saeyeul Park

Yonsei University

Celim Yildizhan

University of Georgia - C. Herman and Mary Virginia Terry College of Business

Date Written: December 8, 2018

Abstract

We show that the post earnings announcement drift (PEAD) is stronger for conglomerates than single-segment firms. Conglomerates, on average, are larger than single segment firms, so it is unlikely that limits-to-arbitrage drive the difference in PEAD. Rather, we hypothesize that market participants find it more costly and difficult to understand firm-specific earnings information regarding conglomerates as they have more complicated business models than single-segment firms. This, in turn slows information processing about them. In support of our hypothesis, we find that, compared to single-segment firms with similar size, conglomerates have relatively low institutional ownership and short interest, are covered by fewer analysts, these analysts have less industry expertise and also make larger forecast errors. Finally, we find that an increase in firm complexity leads to larger PEAD and document that more complicated conglomerates have greater PEADs. Our results are robust to a long list of alternative explanations of PEAD as well as alternative measures of firm complexity.

Keywords: post-earnings-announcement-drift, conglomerates, complicated firms, business complexity

JEL Classification: G11, G12, G14, G32, G33, M4, L14, D82

Suggested Citation

Barinov, Alexander and Park, Shawn Saeyeul and Yildizhan, Celim, Firm Complexity and Post-Earnings-Announcement Drift (December 8, 2018). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.2360338

Alexander Barinov

University of California Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
585-698-7726 (Phone)

HOME PAGE: http://faculty.ucr.edu/~abarinov/

Shawn Saeyeul Park

Yonsei University ( email )

Seoul
Korea, Republic of (South Korea)

Celim Yildizhan (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

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