Is All Disaggregation Good for Investors? Evidence From Earnings Announcements

52 Pages Posted: 26 May 2016 Last revised: 5 Sep 2019

See all articles by Eric Holzman

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting

Joseph H. Schroeder

Indiana University - Kelley School of Business - Department of Accounting

Teri Lombardi Yohn

Emory University Goizueta Business School

Date Written: September 4, 2019

Abstract

Prior work suggests that greater earnings disaggregation in financial statements leads to favorable market outcomes. This perspective is based on a fundamental presumption that the disaggregation separates earnings components with heterogeneous characteristics. We hypothesize that the disaggregation of homogeneous earnings components is associated with greater investor opinion divergence and a less efficient market response to the earnings announcement. We estimate persistence regressions at the industry level and classify earnings components with significant differential persistence relative to sales as heterogeneous and components with insignificant differential persistence relative to sales as homogeneous. Consistent with our hypothesis, we find a significant positive relation between the level of homogeneous earnings disaggregation and investor disagreement around earnings announcements. We also find significantly greater post-earnings announcement drift after earnings announcements with greater homogeneous earnings disaggregation. This evidence is consistent with homogeneous earnings disaggregation hindering investors’ ability to efficiently impound earnings information into price.

Keywords: Disaggregation, Opinion divergence, Market efficiency, Earnings announcements

Suggested Citation

Holzman, Eric and Marshall, Nathan T. and Schroeder, Joseph H. and Yohn, Teri Lombardi, Is All Disaggregation Good for Investors? Evidence From Earnings Announcements (September 4, 2019). Kelley School of Business Research Paper No. 16-44, Available at SSRN: https://ssrn.com/abstract=2784329 or http://dx.doi.org/10.2139/ssrn.2784329

Eric Holzman (Contact Author)

The Ohio State University - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Nathan T. Marshall

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Joseph H. Schroeder

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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