Effects of Earnings Announcements on Liquidity, Information Asymmetry, and Trading: New Evidence from Implementation of ASC 606
59 Pages Posted: 27 Apr 2020 Last revised: 17 Apr 2021
Date Written: December 20, 2019
The implementation of the new revenue recognition standard (ASC 606) has significantly changed the impact of earnings announcements on market quality and trading. In contrast to prior research findings, we show that earning announcements are accompanied by a decrease in the bid-ask spread, the price impact of trades, and informed trading, and an increase in the quoted depth after the implementation of ASC 606. These results indicate that ASC 606 has improved the informativeness of earnings and changed the effect of earnings announcements on the firm’s information and trading environments accordingly.
Keywords: Liquidity, Information asymmetry, Revenue recognition standard, ASC 606, Earnings announcements, Earnings informativeness
JEL Classification: G10, G14, G18, M41, M48
Suggested Citation: Suggested Citation