Investor Reaction to Strategic Emphasis on Earnings Numbers: An Empirical Study

Contemporary Economics, Vol. 7, No. 3, pp. 51-64, 2013

14 Pages Posted: 7 Dec 2013

Date Written: December 2, 2013

Abstract

We analyze the earnings information and stock prices of S&P500 firms and find that investors following S&P500 stocks (i) respond more to pro forma earnings than to GAAP earnings, (ii) respond to an emphasis on pro forma earnings, and (iii) are fixated on pro forma earnings. We provide the first direct evidence that a strategic emphasis on earnings numbers may affect return volatility. Further, our results do not support the argument that a larger investor response to Street earnings might be driven by large differences between the Street numbers and GAAP numbers.

Keywords: earnings press release, emphasis on earnings numbers, stock market reaction, functional fixation hypothesis, fourth quarter earnings

JEL Classification: G11, G14, M41

Suggested Citation

Sadique, M. Shibley and Sheikh, Mohammad Arifur Rahman, Investor Reaction to Strategic Emphasis on Earnings Numbers: An Empirical Study (December 2, 2013). Contemporary Economics, Vol. 7, No. 3, pp. 51-64, 2013 , Available at SSRN: https://ssrn.com/abstract=2362266

M. Shibley Sadique (Contact Author)

Rajshahi University ( email )

Motihar Chattar, Boalia
Rajshahi, Rajshahi 6205
Bangladesh

Mohammad Arifur Rahman Sheikh

University of Brunei Darussalam ( email )

Jalan Tungku Link
Gadong
Bandar Seri Begawan, BE1410
Brunei

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