Differential Volume and Price Reactions to Loss Announcements and the Association With Loss Reversals

Abstract

We examine differential volume-price reactions to loss announcements and their association with loss reversals. Our findings show that differential volume-price reactions are dissimilar between firms reporting profits and losses. In addition, the differential volume-price reactions surrounding loss announcements are useful in predicting loss reversals. When jointly considered, volume and price reactions provide unique information about future profitability for firms currently reporting losses. Overall, our results are consistent with losses generating more investor disagreements and more trading volume and show that a measure based on differential volume-price reactions to loss announcements is informative with regard to predicting subsequent loss reversals.

The impact of IFRS adoption on the value relevance of accounting information in Saudi Arabia

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Return windows and the value relevance of earnings

“…Losses are also less persistent than profits (Lawrence et al ., ). Additionally, loss announcements tend to lead to more investor disagreement about the firm's future prospects and its potential return to profitability, and hence, valuing loss firms becomes more difficult (Joos and Plesko, ; Li, ; Dorminey et al ., ). Our results reported here are consistent with these past findings that losses are less value relevant than profits.…”

Heterogeneous beliefs and idiosyncratic volatility puzzle: evidence from China

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