Getting Bad News Out Early: Does it Really Help Stock Prices?

Abstract

We examine the stock price benefit of meeting or beating earnings expectations. Using a general methodology, we find no compelling evidence that the timing of earnings news benefits firms' stock returns. Our results appear to overturn the findings of previous authors who, using less general methodologies, have suggested that firms can boost their stock returns by getting bad news out early. Our results are robust across time periods, for different scaling factors on earnings, when controlling for firm size and growth prospects, and when conditioned on past earnings news.

Keywords: Analyst forecasts, earnings management, expectations management

JEL Classification: G12, G14, G29, M41