Are Investors Influenced by the Order of Information in Earnings Press Releases?
44 Pages Posted: 12 Sep 2017
Date Written: September 1, 2017
We examine the ordering of information within quarterly earnings announcements, and how that ordering influences investor response to those announcements. We find that managers appear to emphasize good news; on average, positive information is concentrated in the first section of the press release, rather than evenly dispersed. This emphasis does not appear to be driven by managerial incentives to manage perceptions. Instead, it appears to be informative: positive information is emphasized more when the expectations gap between the market and managers is positive (i.e., when the market is unduly pessimistic about future earnings). Investors respond to emphasized news – earnings-period returns increase with our measure of emphasis even after controlling for the earnings surprise and the aggregate news in the overall document – although that response is incomplete. Our collective evidence suggests that information placement conveys useful information to the market, and that investor response to information placement is warranted, rather than the result of an unintentional cognitive effect.
Keywords: earnings release, disclosure, order of information, underreaction
JEL Classification: G14, G41, M40
Suggested Citation: Suggested Citation