Usefulness of earnings announcements and other news: Evidence from the impact of peer information on IPO offer price revision

67 Pages Posted: 8 Jun 2021 Last revised: 28 Mar 2023

See all articles by Xiaoxu Ling

Xiaoxu Ling

Hong Kong Polytechnic University - School of Accounting and Finance

Ivy Zhang

University of California, Riverside

Yong Zhang

Hong Kong Polytechnic University

Date Written: June 5, 2021

Abstract

We study the relative usefulness of earnings announcements versus other information for valuation from the perspective of information externalities using the unique setting of pre-IPO quiet period. Strict quiet period restrictions allow us to better identify the direction of information transfers. The usefulness of an information source for peer valuation is a function of both the amount and the per-unit usefulness of the information. While prior research suggests that earnings announcements supply a modest amount of incremental information, we find the per-unit usefulness of peer earnings announcements to be higher than other news in IPO pricing. Using stock returns around (outside) earnings announcements to capture earnings (other) information (e.g., Ball and Shivakumar 2008), we find that a 1-percent change in peer valuation caused by earnings announcements results in 60 percent larger IPO offer price revisions than a 1-percent change in peer valuation caused by other information. High accounting comparability and reporting quality of peers further improve the per-unit usefulness of peer earnings announcements. Issuers avoid setting their offering dates to immediately precede peer earnings announcements, suggesting that these are important information events. We also find that peer earnings news during the filing period better predicts issuer future financial performance than other peer news.

Suggested Citation

Ling, Xiaoxu and Zhang, Ivy and Zhang, Yong, Usefulness of earnings announcements and other news: Evidence from the impact of peer information on IPO offer price revision (June 5, 2021). Available at SSRN: https://ssrn.com/abstract=3860628 or http://dx.doi.org/10.2139/ssrn.3860628

Xiaoxu Ling

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Ivy Zhang (Contact Author)

University of California, Riverside ( email )

900 University Ave
Riverside, CA 92521
United States

Yong Zhang

Hong Kong Polytechnic University ( email )

Hung Hom
Hung Hom
Kowloon, AK HK HK
Hong Kong

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