Public Predisclosure Information, Firm Size, Analyst Following, and Market Reactions to Earnings Announcements

Abstract

This study examines the effects of public predisclosure information on market reactions to earnings announcements. We develop an empirical measure of public predisclosure information impounded in price prior to earnings announcements by cumulating abnormal returns on public news release dates during the quarter. Consistent with prior literature, we document a negative association between this measure and market reactions to subsequent earnings announcements. Moreover, we find that after controlling for this measure, firm size and analyst following are significantly "positively" associated with market reactions to earnings announcements. Contrary to prior empirical evidence, our results suggest that, after controlling for actual predisclosure information impounded in price, market reactions to earnings announcements are greater in magnitude for larger, more widely-followed firms than for smaller, less widely-followed firms. Copyright Blackwell Publishing Ltd, 2004.

The Information Content of Earnings Announcements in Denmark

“…MV * IBES UE and NA * IBES UE are the IBES UE multiplied by the market value of equity the day before the event window (MV) and the number of analysts following a firm (NA), respectively. * , * * , and * * * denote statistical significance at the 10%, 5%, and 1% level, respectively Kross and Schroeder (1988) and Christensen et al (2004). Although at first glance this result might seem to conflict with our earlier finding of a positive correlation between information content and proxies for predisclosure information, this is not necessarily the case.…”

“…This empirical work has largely found evidence in support of the proposed inverse relationship between the market reaction to EAs and predisclosure information regardless of the approach and proxies used (i.e. Atiase, 1985, Lobo and Mahmoud, 1989, Dempsey, 1989, Shores, 1990, Pope and Inyangete, 1992and Christensen et al, 2004.…”

Finding diamonds in the rough: Analysts’ selective following of loss‐reporting firms

“…The evidence is somewhat mixed, however. On the one hand, numerous studies document market reactions to the release of analysts’ research reports, recommendations, earnings forecasts, target price, forecasts, etc., showing that these reports contain useful information that is valuable to investors (e.g., Asquith, Mikhail, & Au, ; Beaver, Cornell, Landsman, & Stubben, ; Chen, Cheng, & Lo, ; Christensen, Smith, & Stuerke, ; Frankel, Kothari, & Weber, ; Gleason & Lee, ). The market responds to analyst forecasts and their revisions, suggesting investors believe analysts have some forecasting ability.…”

The Information Content of Earnings Announcements in the European Insurance Market: An Event Study Analysis

“…Investors anticipate the incentive to manage earnings and judge their quality in the non-life sector (Christensen et al 1999) and use earnings disclosures arising from major catastrophes to reduce the uncertainty they face (Christensen et al 2002). Moreover, greater market reactions are associated with non-life larger and more widely followed firms (Christensen et al 2004) and are influenced by uncertainty among analysts (Christensen et al 2005).…”