Stock Return Volatility Surrounding Management Earnings Forecasts

Abstract

I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis.

The impact of litigation risk on the strategic timing of management earnings forecasts

“…Given that releases made on a Friday are still during trading hours, we are not surprised to find no significant difference in the levels of volatility on a Friday compared to the rest of the week. Our results are also consistent with prior literature in that we find bad news forecasts are associated with greater levels of stock return volatility (see, for example, Jackson, ) and that the best explanation for volatility on day t is the volatility from day t −1 (see, for example, Jackson, ; Cheung and Jackson, ).…”

“…Jackson () shows, in a comparable sample, stock return volatility is greater for MEFs containing bad news. However, this relation is less pronounced for announcements that are issued after the market closes.…”

“…This more benign explanation may also serve managers’ opportunistic objectives in that heightened volatility after corporate disclosure events could potentially impose contracting and trading costs on the disclosing firm (Baiman and Verrecchia, ; Bettis et al ., ; Jackson, ).…”

Chief Executive Officer departures and market uncertainty

“…This measure accounts for all readily available information, specifically the daily high (H) and low (L) prices as well as the opening (O) and closing (C) prices. This estimator is therefore a more efficient estimator for stock return volatility, being unbiased with minimum variance (Garman and Klass, 1980;Jackson, 2011), and is defined by Equation (1):…”

“…In reality, however, managers tend to differ in their preferences, risk aversion, skill levels and opinions so that corporate policies, and therefore firm value, depend on who is in control. Theoretically, during the period that investors are revising their expectations of firm value, stock return volatility will be heightened (Jackson, 2011).…”