Calendar rotations: A new approach for studying the impact of timing using earnings announcements

Can star analysts make superior coverage decisions in poor information environment?

“…Investors may underreact to salient information about firm fundamentals conveyed by star analysts' coverage decisions. The resulting underpricing will be subsequently corrected when new information (e.g., earnings announcements) arrives and investors update their beliefs accordingly (e.g., Noh, So and Verdi, 2021). Consistent with this mechanism, we find that stocks with high abnormal coverage of star analysts have higher returns on earnings announcement days than on non-announcement days.…”

“…represent mispricing due to investor underreaction to such information. Under this explanation, undervalued stocks will subsequently experience a price correction that occurs when new information (e.g., earnings announcements) is made public and investors update their beliefs about firms' future performance (e.g., Noh, So and Verdi, 2021). Therefore, the abnormal returns predicted by star analysts' coverage decisions would concentrate on future earnings announcement dates.…”

What Do Investors Value? A Multidisciplinary Review

“…For instance, Michaely et al (2016) found evidence that firms switch announcements to Friday evening when they have bad news. Along the same line, prior research has shown that early announcements of firm earnings, caused by a calendar rotation unrelated to firm performance, tend to attract greater investor attention and enjoy more favorable responses (Noh, So, & Verdi, 2021). The research has also shown that the stock market is less responsive when negative news, such as performance shortfalls, is reported in the "missing month," a stub period not covered by regular quarterly reports, earnings announcements, and analyst reports when public firms change their fiscal year ending date (Du & Zhang, 2013).…”

Flu Fallout: Information Production Constraints and Corporate Disclosure

“…On the other hand, there may be limits to how managers can extend their reporting lags. The SEC establishes 10-Q/K statutory filing deadlines (depending on a firm's filing status, e.g., accelerated or not), and the costs of long reporting lags are not trivial (Kross and Schroeder [1984], Johnson and So [2018], Noh, So, and Verdi [2021]). Therefore, managers may feel pressured to promptly address their concerns about forecast quality, and a lengthy reporting lag may indicate severe constraints on information production.…”