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

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Chairat Chuwonganant

Kansas State University - Department of Finance

Date Written: December 20, 2019

Abstract

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

Chung, Kee H. and Chuwonganant, Chairat, Effects of Earnings Announcements on Liquidity, Information Asymmetry, and Trading: New Evidence from Implementation of ASC 606 (December 20, 2019). Available at SSRN: https://ssrn.com/abstract=3508041 or http://dx.doi.org/10.2139/ssrn.3508041

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Chairat Chuwonganant

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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