The Effects of Earnings and Firm Characteristics on Differential Interpretation of Earnings Announcements

42 Pages Posted: 15 Sep 2006

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Douglas E. Stevens

Georgia State University - Robinson College of Business

Minsup Song

Sogang University

Date Written: April 3, 2007

Abstract

This study examines whether differential interpretation of earnings announcements is affected by earnings and firm characteristics. We find that Kandel and Pearson's (1995) forecast measures of differential interpretation are: 1) negatively related to earnings predictability, firm size, and price-to-book ratio, and 2) positively related to earnings surprise, negative earnings, and analyst coverage. This evidence suggests that differential interpretation of earnings announcements is decreasing in the quality of the earnings, the quality of pre-announcement disclosure, and the cost of analyzing a firm's value.

Keywords: differential interpretation, earnings precision, prior information

JEL Classification: G10, G14, G29, M41, M43, G32

Suggested Citation

Ahmed, Anwer S. and Stevens, Douglas E. and Song, Minsup, The Effects of Earnings and Firm Characteristics on Differential Interpretation of Earnings Announcements (April 3, 2007). Available at SSRN: https://ssrn.com/abstract=930681 or http://dx.doi.org/10.2139/ssrn.930681

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Douglas E. Stevens

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

Minsup Song (Contact Author)

Sogang University ( email )

Palaus Hall 802, Sogang Business School
1 Shinsoo-Dong, Mapo-Gu
Seoul
Korea, Republic of (South Korea)
82-2-705-8855 (Phone)

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