The Impact of Earnings Announcements on a Firm's Information Environment

50 Pages Posted: 28 Nov 2016 Last revised: 27 Apr 2018

See all articles by Mark T Bradshaw

Mark T Bradshaw

Boston College

Marlene Plumlee

University of Utah - School of Accounting

Benjamin C. Whipple

University of Georgia - C. Herman and Mary Virginia Terry College of Business

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting

Date Written: April 11, 2018

Abstract

We examine how earnings announcements change a firm’s information environment, captured by the relative level of private and common information in analysts’ expectations, and offer several extensions. First, we demonstrate that a firm’s pre-existing information environment is a crucial determinant of how earnings announcements alter the proportion of common information – or consensus – in analysts’ expectations. Earnings announcements have a more negative (positive) effect on consensus when the pre-earnings announcement consensus is higher (lower). Second, voluntary disclosures such as bundled management forecasts increase consensus, whereas non-GAAP disclosures decrease consensus. Finally, we examine whether these effects differ across revenue and expense expectations and find that earnings announcements decrease consensus for expenses significantly more than for revenues. We also document that both management forecasts and non-GAAP disclosures increase consensus for revenue expectations, but have differing effects on expense expectations. Our study extends the prior literature by demonstrating that the change in the consensus of beliefs around earnings announcements is conditional on both the pre-existing level of consensus as well as voluntary disclosures made concurrent with the earnings announcement.

Keywords: Consensus, Private Information, Common Information, Information Environment, Earnings Announcement

JEL Classification: M41, G21

Suggested Citation

Bradshaw, Mark T and Plumlee, Marlene A. and Whipple, Benjamin C. and Yohn, Teri Lombardi, The Impact of Earnings Announcements on a Firm's Information Environment (April 11, 2018). Available at SSRN: https://ssrn.com/abstract=2875839 or http://dx.doi.org/10.2139/ssrn.2875839

Mark T Bradshaw

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Marlene A. Plumlee

University of Utah - School of Accounting ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Benjamin C. Whipple (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

Teri Lombardi Yohn

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

1309 E. 10th Street
Bloomington, IN 47405
United States
(812) 855-0430 (Phone)

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