Shocks to Product Networks and Post-Earnings Announcement Drift

71 Pages Posted: 6 Jul 2016 Last revised: 1 Jan 2018

See all articles by Bok Baik

Bok Baik

Seoul National University

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Jungbae Kim

New York University - Stern School of Business

Peter Oh

McGill University - Desautels Faculty of Management

Date Written: December 31, 2017

Abstract

This paper examines whether shocks to less visible product market network peers explain industry level post-earnings announcement drift (IPEAD). On the real-side, we find that peer earnings shocks propagate slowly through the peer network, creating a complex and conditional autocorrelation structure in earnings shocks. This impacts the financial-side, and IPEAD arises only when shocked peers are less visible in the network and when shocks are driven by persistent supply-side shocks to expenses rather than by demand-side shocks to sales. In addition, IPEAD is particularly strong when 10-K expense disclosures are opaque. Collectively, our results suggest that inattention to less visible peers, complex autocorrelation in earnings shocks, and a poor informational environment on the expense side are likely channels that generate IPEAD. IPEAD returns are economically large in subsamples motivated by this explanation.

Keywords: Product market, TNIC, Networks, Persistence, Inattention, Supply shocks, Post-earnings announcement drift

JEL Classification: G14, L22, M41

Suggested Citation

Baik, Bok and Hoberg, Gerard and Kim, Jungbae and Oh, Peter, Shocks to Product Networks and Post-Earnings Announcement Drift (December 31, 2017). Available at SSRN: https://ssrn.com/abstract=2803775 or http://dx.doi.org/10.2139/ssrn.2803775

Bok Baik

Seoul National University ( email )

Seoul
Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Jungbae Kim

New York University - Stern School of Business ( email )

44 West 4th Street
KMC 10-99
New York, NY 10012
United States

Peter Oh (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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