Crowdsourced Financial Analysis and Information Asymmetry at Earnings Announcements

44 Pages Posted: 8 Nov 2018 Last revised: 7 Dec 2018

See all articles by Enrique Gomez

Enrique Gomez

University of Georgia

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

James Moon

Georgia Institute of Technology - Scheller College of Business

James Warren

University of Georgia - J.M. Tull School of Accounting

Date Written: November 2018

Abstract

We investigate whether a relatively new phenomenon, crowdsourced financial analysis, helps level the playing field among investors at earnings announcements. Earnings announcements precipitate high information flows that yield significant information advantages for more-sophisticated investors, resulting in heightened information asymmetry. We predict and find that more crowdsourced financial analysis during the weeks before an earnings announcement significantly mitigates this increase in information asymmetry. Further, we find this effect is stronger for firms operating in poorer information environments (lower press coverage and analyst following) and for firms failing to provide voluntary earnings guidance. Additional analyses reinforce our primary inferences by indicating that crowdsourced financial analysis (1) is most useful to less- sophisticated investors and (2) reduces opinion divergence at earnings announcements. Overall, our evidence suggests the crowds play an important role in leveling the playing field among investors.

Keywords: Social Media, Crowdsourcing, Information Asymmetry, Earnings Announcements, Bid-ask Spreads

JEL Classification: M41, M21, G00, G12, O33

Suggested Citation

Gomez, Enrique and Heflin, Frank and Moon, James and Warren, James, Crowdsourced Financial Analysis and Information Asymmetry at Earnings Announcements (November 2018). Georgia Tech Scheller College of Business Research Paper No. 18-45. Available at SSRN: https://ssrn.com/abstract=3274644 or http://dx.doi.org/10.2139/ssrn.3274644

Enrique Gomez

University of Georgia ( email )

Athens, GA 30602-6254
United States

Frank Heflin

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

James Moon (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

James Warren

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

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