The Information Content of Earnings Announcements: New Insights on Intertemporal and Cross-Sectional Behavior

56 Pages Posted: 27 Jul 2016 Last revised: 13 Mar 2018

Date Written: February 13, 2017

Abstract

This study examines the information content of quarterly earnings announcements, measured as the magnitude of stock price revision at earnings announcements relative to price revision at other times. We investigate whether quarterly earnings announcements are informative using a nonparametric approach and 1971-2011 sample period. The findings affirm prior evidence on earlier sample periods that significantly more information is conveyed to investors in the three days around earnings announcements than in randomly chosen three-day periods. Next, we examine the behavior of information content over our sample period and document four key findings. First, there is a dramatic increase in information content at earnings dates from 2001 onward. Second, the market reaction to loss firms is substantially less than that for profitable firms. Third, there is a significantly greater reaction to larger firms. Fourth, reaction at earnings dates is significantly increasing in analyst coverage, and once analyst coverage is controlled, the association with size becomes less significant.

Keywords: capital markets; earnings announcements; information content; return volatility

JEL Classification: M41

Suggested Citation

Beaver, William H. and McNichols, Maureen F. and Wang, Zach, The Information Content of Earnings Announcements: New Insights on Intertemporal and Cross-Sectional Behavior (February 13, 2017). Review of Accounting Studies, March 2018, Volume 23, Issue 1, pp 95-135, Stanford University Graduate School of Business Research Paper No. 16-40, Rock Center for Corporate Governance at Stanford University Working Paper No. 221, Available at SSRN: https://ssrn.com/abstract=2814387 or http://dx.doi.org/10.2139/ssrn.2814387

William H. Beaver

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4409 (Phone)
650-725-6152 (Fax)

Maureen F. McNichols (Contact Author)

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-0833 (Phone)

Zach Wang

Cornerstone Research ( email )

1000 El Camino Real
Menlo Park, CA 94025-4327
United States

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