Market Reaction to Quantitative and Qualitative Order Backlog Disclosures

53 Pages Posted: 8 Dec 2014 Last revised: 18 Apr 2018

See all articles by Ronen Feldman

Ronen Feldman

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Suresh Govindaraj

Rutgers University - Rutgers Business School - Newark and New Brunswick

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Kate Suslava

Bucknell University Freeman College of Management

Date Written: December 6, 2014

Abstract

Information on Order Backlogs (OB) have long been sought after by analysts and practitioners as indicators of future sales, and in turn, of future earnings and stock returns. OB disclosures, though mandatory for annual reports, are voluntary for quarterly reports, and sometimes presented in preliminary earnings releases as a textual narration. We show that OB disclosures provide sales forecasting benefits to the users of financial statements and generate significant investor responses. Contributing to the existing literature, we study both annual and quarterly OB disclosures, and further distinguish between quantitative and qualitative OB disclosures in the quarterly filings. We investigate why managers make certain choices regarding the frequency and the format of OB disclosures. We show that both quantitative information on increases in OB and positive qualitative indications by management about the direction of OB, are associated with higher (incremental) immediate and drift returns.

Keywords: earnings surprise, future sales growth, order backlog, qualitative disclosures, stock returns

JEL Classification: G14, M41

Suggested Citation

Feldman, Ronen and Govindaraj, Suresh and Livnat, Joshua and Suslava, Kate, Market Reaction to Quantitative and Qualitative Order Backlog Disclosures (December 6, 2014). Available at SSRN: https://ssrn.com/abstract=2534810 or http://dx.doi.org/10.2139/ssrn.2534810

Ronen Feldman

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Suresh Govindaraj (Contact Author)

Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )

1 Washington Park
Room #934
Newark, NJ 07102
United States

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

Kate Suslava

Bucknell University Freeman College of Management ( email )

701 Moore Ave
Lewisburg, PA 18837
United States

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