The Acquisition and Integration of Street Earnings: Evidence from a Natural Experiment

47 Pages Posted: 30 Jul 2018 Last revised: 1 Feb 2021

See all articles by Khrystyna Bochkay

Khrystyna Bochkay

University of Miami - School of Business Administration

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business

Eric H. Weisbrod

University of Kansas - School of Business

Date Written: January 19, 2021

Abstract

In September 2009, Thomson Reuters (TR) discontinued its practice of relying on analysts to acquire street earnings when unexpected items are present, resulting in street earnings that are timelier and more predictive of future performance. We use this event as an exogenous shock to analysts' information processing to study the interactions between information acquisition and integration. Adopting a difference-in-differences approach, we find that after 2009 analysts treat unexpected items more similar to TR, consistent with improved acquisition, and issue more accurate and less dispersed forecasts, consistent with improved integration. The net effect of these changes strengthens (weakens) the intermediary role of TR (analysts), as evidenced by street earnings (analyst forecasts) having greater (smaller) price impact. Finally, we find that a significant portion of TR's effect on price discovery is through its effect on analysts. Our results highlight the interconnected nature of information acquisition and integration in capital markets.

Keywords: street earnings, processing costs, information acquisition, information integration, price discovery, analyst forecasts

JEL Classification: M41, G14, G23

Suggested Citation

Bochkay, Khrystyna and Markov, Stanimir and Subasi, Musa and Weisbrod, Eric H., The Acquisition and Integration of Street Earnings: Evidence from a Natural Experiment (January 19, 2021). University of Miami Legal Studies Research Paper No. 3219449, Available at SSRN: https://ssrn.com/abstract=3219449 or http://dx.doi.org/10.2139/ssrn.3219449

Khrystyna Bochkay

University of Miami - School of Business Administration ( email )

Coral Gables, FL 33146-6531
United States

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business ( email )

University of Maryland-College Park
4332N Van Munching Hall
College Park, MD 20742
United States
301-314-1055 (Phone)

Eric H. Weisbrod (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

HOME PAGE: http://https://business.ku.edu/eric-weisbrod

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