Revenue Growth and Stock Returns

University of Illinois Working Paper

42 Pages Posted: 23 Jun 2002

See all articles by Narasimhan Jegadeesh

Narasimhan Jegadeesh

Emory University - Department of Finance

Date Written: May 2002


This paper examines the relation between revenue surprises and future stock returns. It also investigates how analysts update their earnings forecasts following announcements of revenue and earnings surprises. The results indicate that the stock price reaction on the earnings announcement date is significantly related to both revenue surprises and earnings surprises. I also find significant abnormal returns in the post announcement period for stocks that have large revenue surprises, after controlling for earnings surprises. Although analysts revise their forecasts of future earnings in response to revenue and earnings surprises, they are slow to incorporate all the information in their forecast revisions. In particular analysts underestimate the extent to which revenue and earnings surprises have permanent effects on future earnings.

Keywords: Revenue growth, revenue surprises, earnings growth, Standardized unexpected earnings, Standardized unexpected revenue growth, post-announcement drift, market efficiency

JEL Classification: G12, G14

Suggested Citation

Jegadeesh, Narasimhan, Revenue Growth and Stock Returns (May 2002). University of Illinois Working Paper. Available at SSRN: or

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

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