Does Firm Life Stage Affect Investor Behavior? Evidence from Earnings Announcement Reactions

68 Pages Posted: 8 Sep 2020 Last revised: 21 Nov 2020

See all articles by Kelley Bergsma

Kelley Bergsma

Ohio University

Andy Fodor

Ohio University

Vijay Singal

Virginia Tech

Jitendra Tayal

Ohio University

Date Written: November 21, 2020

Abstract

This study finds that firm life stage affects investor behavior around earnings announcements. Introduction and decline stage companies exhibit significantly less positive cumulative abnormal returns (CARs) around positive earnings surprises and more negative CARs around negative earnings surprises as compared with companies in growth, maturity, and shake-out stages. As stocks become more lottery-like, reactions to positive earnings surprises are less positive for introduction and decline stage firms but are more positive for firms in other life stages. Our findings suggest that the variation in stock price responses is driven by speculation from noise/retail traders in hard-to-value stocks.

Keywords: Earnings announcements, firm life stage, idiosyncratic volatility, lottery, speculation.

JEL Classification: G10, G12, G14

Suggested Citation

Bergsma, Kelley and Fodor, Andy and Singal, Vijay and Tayal, Jitendra, Does Firm Life Stage Affect Investor Behavior? Evidence from Earnings Announcement Reactions (November 21, 2020). Available at SSRN: https://ssrn.com/abstract=3661714 or http://dx.doi.org/10.2139/ssrn.3661714

Kelley Bergsma

Ohio University ( email )

1 Ohio University
Athens, OH OH 45701
United States

Andy Fodor

Ohio University ( email )

514 Copeland Hall
Athens, OH 45701
United States
740.593.0259 (Phone)

Vijay Singal

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

Jitendra Tayal (Contact Author)

Ohio University ( email )

Athens, OH 45701
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
65
Abstract Views
363
rank
383,859
PlumX Metrics