Business Cycles, Firm Size and Market Reactions to News

46 Pages Posted: 20 Mar 2008 Last revised: 14 May 2014

See all articles by Yiming Qian

Yiming Qian

University of Connecticut

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Date Written: July 30, 2009

Abstract

Previous studies document that market reactions to firm-level earnings news are stronger during good times than in bad times. We find that this result is driven by small firms. In fact, the market reaction to large firms' earnings news is weaker during economic expansions than contractions. We then investigate five possible explanations. We find that the size effect on time-varying market reaction to news cannot be explained by the distinction between value and growth stocks, the entry and exit of new firms into the economy, earnings management, or time-varying earnings persistence. There is some evidence consistent with time-varying investor attention, but investor attention does not appear to completely explain our results. Our findings, therefore, remain a puzzle.

Keywords: market reaction to earnings news, business cycles, firm size, value stock and growth stock, earnings persistence, earnings management, investor attention

JEL Classification: G12, G14, G30, M41, M43, E32

Suggested Citation

Qian, Yiming and Yu, Xiaoyun, Business Cycles, Firm Size and Market Reactions to News (July 30, 2009). Available at SSRN: https://ssrn.com/abstract=891403 or http://dx.doi.org/10.2139/ssrn.891403

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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