Earnings Announcement Content as a Signal of Reliability

Forthcoming, Journal of Accounting Auditing and Finance

43 Pages Posted: 1 Aug 2023

See all articles by Scott Seavey

Scott Seavey

Florida Atlantic University - School of Accounting

Neal M. Snow

Independent Researcher

James Whitworth

University of South Florida

Date Written: July 27, 2023

Abstract

We extend literature on the timing and quantitative content of earnings announcements (EAs), and consider whether managers use qualitative characteristics to relate the reliability of earnings information, relative to audit completion. We also examine if qualitative differences in EAs moderate investor reactions to the EA. Assessing the linguistic content of EA disclosures for uncertainty and readability on a sample of firms from 2004 to 2020, we hypothesize and find that EAs released early relative to audit completion convey lower reliability, measured by more uncertain and less readable language. For firms that do release early, the more uncertain and less readable the EA is the earlier they release. We also predict that such information is a more reliable, optimistic signal of future operations, and that a prior accounting restatement will increase uncertainty in EAs. We find that firms that restate financial reports from the prior year use more uncertain and less readable language in current year announcements. Finally, we examine the relevance of more or less certainty and readability through investor responses to earning announcements. When earnings news is unexpectedly good, there is a larger positive market response to earnings when those EAs use more certain and readable language. When the news is unexpectedly bad, there is a more negative market response to earnings when those EAs use more certain and readable language.

Keywords: earnings announcements, audit completion, certainty, readability, content analysis, financial restatement

JEL Classification: M41, M42

Suggested Citation

Seavey, Scott and Snow, Neal M and Whitworth, James, Earnings Announcement Content as a Signal of Reliability (July 27, 2023). Forthcoming, Journal of Accounting Auditing and Finance, Available at SSRN: https://ssrn.com/abstract=4522941

Scott Seavey

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States

Neal M Snow

Independent Researcher ( email )

Emmaus, PA 18049
United States
484-935-3476 (Phone)

James Whitworth (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

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