Unexpected Distractions and Investor Attention to Corporate Announcements

50 Pages Posted: 24 Oct 2017 Last revised: 15 May 2019

See all articles by Doron Israeli

Doron Israeli

IDC Herzliya - Arison School of Business

Ron Kasznik

Stanford Graduate School of Business

Suhas A. Sridharan

Emory University - Goizueta Business School

Date Written: May 13, 2019

Abstract

We investigate how unexpected distractions affect investors' reactions to corporate earnings announcements. We use a daily news pressure (DNP) index as a proxy for the presence of potential investor distraction. Since breaking news captured by this index is largely unpredictable and unrelated to investors' valuation decisions, our research design offers a unique opportunity to examine investor attention in the absence of strategic timing of announcements by managers. Using overall trading volume and Google searches as measures of investor attention, we find that investors are susceptible to distractions in their reactions to earnings announcements. We further find that DNP measures a form of distraction that affects retail but not institutional investors. Furthermore, we find that price reactions to earnings announcements are not affected by unexpected distractions. Our results reveal that unexpected distractions reduce the attention of retail investors to earning announcements, but do not necessarily lead to observable pricing effects.

Keywords: Investor attention; earnings announcements; retail trading; distraction

JEL Classification: G12, G14, L20, M41

Suggested Citation

Israeli, Doron and Kasznik, Ron and Sridharan, Suhas A., Unexpected Distractions and Investor Attention to Corporate Announcements (May 13, 2019). Available at SSRN: https://ssrn.com/abstract=3057278 or http://dx.doi.org/10.2139/ssrn.3057278

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel
+972 9 952 7673 (Phone)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

Suhas A. Sridharan

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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