Analysts' Activities after Earnings Announcement and Post-Earnings-Announcement Drift
46 Pages Posted: 12 Jul 2006
Date Written: June 2006
This study examines the effect of analysts' activities after earnings announcements on the magnitude of the post-earnings-announcement drift. Using the level of private information precision in analysts' earnings forecasts after earnings announcement derived from Barron, Kim, Lim and Stevens (1998) as a measure of analysts' post-announcement activities, we find that the magnitude of the drift is significantly smaller for firms with higher level of analysts' activities after earnings announcements. Results also show that this negative association is more pronounced for firms with higher geographic diversification, firms not audited by industry leaders, and firms with higher institutional holdings, consistent with our hypothesis that the analysts' post-announcement activities are more effective in reducing the drift where the demand for analysts' activities is higher. This contributes to our understanding of the role of financial analysts in helping the market impound earnings news into stock prices.
Keywords: post-earnings-announcement drift, analysts' activities
JEL Classification: G14, G24, D82
Suggested Citation: Suggested Citation