How do the content,format, and tone of Twitter-based corporate disclosure vary depending on earnings performance?

Using 86,891 tweets, from the official corporate Twitter accounts of 715 unique firms, this study examines whether and how managers strategically attract and distract investors’ attention from corporate news through Twitter. We find that firms with good earnings news use Twitter to post more earnings-related information directly, whereas firms with bad earnings news post more non-earnings-related information on Twitter. We further find that depending on earnings performance firms strategically choose the format of tweets (qualitative or quantitative) and the tone of earnings tweets (positive or negative) to attract investors’ attention to good news or distract investors’ attention from bad news. Our results are robust to difference-in-differences (DID), alternative sample periods, and different variable specifications. Our findings provide empirical evidence for investors and regulators regarding current practices in corporate information on Twitter.     

Do conference calls facilitate market price discovery? Evidence from Taiwan

This study examines whether conference calls accelerate the speed at which the market and analysts understand the implications of the accrual components of current earnings on future earnings. We analyze Taiwan’s listed firms from 2001 through 2014 and find that (1) delayed market reactions to earnings news during the following 12?months occur less often for firms than for host conference calls, and (2) conference calls are associated with a significant improvement in the accuracy of analysts’ earnings forecasts. One possible explanation for our results is that conference calls improve the efficacy of investors’ and analysts’ reactions to earnings announcements by conveying information regarding the accrual components of reported earnings. Our results have implications for other Asian economies that have relatively opaque information environments and weak shareholder protections.     

Inconsistent Signals,Earnings Announcements,and Market Uncertainty

We test the proposition in Johnstone (2016) that new information may lead to higher, rather than lower, uncertainty about firms’ future payoffs. Based on the Bayesian rule, we hypothesize earnings news that is inconsistent with investors’ prior belief will lead to higher market uncertainty. Using earnings signals in the past few quarters to proxy for investors’ prior belief, we find supporting evidence that, relative to consistent earnings news, inconsistent news results in an increase in market uncertainty measured by implied volatility. Inconsistent earnings news has a larger effect on market uncertainty when prior beliefs are stronger and when the news is negative. Overall, our evidence highlights the importance of prior belief and inconsistent signals in understanding the effect of earnings news on market uncertainty.     

Accounting earnings response coefficient: An extension to banking shares in Asia Pacific countries

This paper reports new finding on earnings response coefficients for banking firms on how disclosures on total earnings and disaggregated fee earnings are used by investors to change share prices prior to earnings disclosures. The information relating to total earnings influences share prices significantly in all four banking sectors studied, all of which have sufficiently liberalized capital markets. Australian investors appear to use information on disaggregated non-interest fee income to revise share prices significantly: not so in other markets. The investors in Malaysia and South Korea appear to consider changes in fee income as bad news with negative price impact, anomalous to theory. The Australian investors appear to regard both total and fee incomes as equally important whereas investors in other markets either ignore or consider changes in fee income as bad news for share valuation. This study extends the literature on this topic from non-bank to banking firms.     

Announcing the announcement

What drives investors’ attention? We study how far in advance earnings calendars are pre-announced and find that investors are more attentive to earnings news when such details are disclosed well ahead of time. This variation in investors' attention affects short-run and long-run stock returns, thereby creating incentives for firms to strategically pre-announce the report date on short notice when the earnings news is bad. Consistent with this idea, firms pre-announce their report dates well ahead of time when earnings are good and do it at the very last moment when earnings are bad. A trading strategy that exploits such variations yields abnormal returns of 1.5% per month.     

Driven to Distraction: Extraneous Events and Underreaction to Earnings News

Recent studies propose that limited investor attention causes market underreactions. This paper directly tests this explanation by measuring the information load faced by investors. The  investor distraction hypothesis  holds that extraneous news inhibits market reactions to relevant news. We find that the immediate price and volume reaction to a firm's earnings surprise is much weaker, and post-announcement drift much stronger, when a greater number of same-day earnings announcements are made by other firms. We evaluate the economic importance of distraction effects through a trading strategy, which yields substantial alphas. Industry-unrelated news and large earnings surprises have a stronger distracting effect.     

When Good News Is Not So Good: Economy‐wide Uncertainty and Stock Returns

This paper shows that variation in economy‐wide uncertainty causes asymmetric stock price responses to firm earnings surprises. The uncertainty that attends bad earnings news that arrives during expansions with greater economy‐wide uncertainty occasions larger price declines. This is because news inconsistent with investors’ prior beliefs about the state of the economy increases uncertainty, which amplifies the negative cash flow effects contained in bad earnings news. Asymmetrically, the positive cash flow effect of good earnings news that arrives during recessions is offset by increased investor uncertainty, which results in relatively smaller price reactions to the good news. This is consistent with Veronesi's rational expectations equilibrium model, which shows that investors demand higher expected returns in the face of greater uncertainty.     

Trading volume in options and common stock around quarterly earnings announcements

This study examines trading in call and put options around quarterly earnings announcements and investigates whether the existence of these options affects the common stock trading volume response to these announcements. We find that the options trading volume reaction to earnings announcements is larger than the corresponding reaction in common stock. Consistent with the idea that options provide an alternative vehicle for trading on information, the existence of these options lowers the level of trading in common stock. Options also appear to offer investors an alternative method of taking short positions, as shown by the symmetric stock market trading volume reaction to good versus bad news for firms with listed options. In contrast, firms without listed options exhibit a larger trading volume response to good news than to bad news of similar magnitude.     

Regulation Fair Disclosure and the timeliness of long-horizon management forecasts

We examine the effect of Regulation Fair Disclosure (hereafter Reg FD) on the timeliness of long-horizon management forecasts of annual earnings, especially those conveying bad news. We expect that managers are less timely in issuing bad news forecasts than good news forecasts prior to Reg FD when they can disclose bad news to selected analysts and institutional investors privately. As Reg FD prohibits private disclosures of material information, managers are expected to accelerate the issuance of long-horizon bad news forecasts after Reg FD due to concerns of litigation risk from institutional investors and loss of analyst coverage, leading to a decrease in timeliness asymmetry between bad news and good news forecasts. We also expect that the effect of Reg FD is stronger among firms with lower ex-ante litigation risk or higher information asymmetry as they are more likely to withhold bad news prior to Reg FD. In addition, we expect that investors and analysts react more to bad news forecasts than to good news forecasts prior to Reg FD, and this asymmetry decreases after Reg FD. Our results are consistent with our predictions and suggest that managers provide long-horizon forecasts conveying bad news more timely after Reg FD.     

Weather,institutional investors and earnings news

We examine how pre-announcement weather conditions near a firm's major institutional investors affect stock market reactions to firms' earnings announcements. We find that unpleasant weather experienced by institutional investors leads to more delayed market responses to subsequent earnings news. Moreover, unpleasant weather of institutional investors is associated with higher earnings announcement premia. The influence of institutional investors' weather is robust after controlling for New York City weather, extreme weather conditions, and firm local weather. Additional cross-sectional evidence suggests that the strength of this weather effect is related to institutional investors' trading behavior.     

Short sale constraints,heterogeneous interpretations,and asymmetric price reactions to earnings announcements

This study tests Miller’s (1977) overpricing hypothesis from a new angle. Specifically, we investigate the effects of heterogeneous interpretations on price reactions to earnings announcements. We find that the difference between good news and bad news earnings response coefficients increases with the degree of heterogeneous interpretations in the presence of short sale constraints. This pattern is more pronounced when short sale constraints are more binding. These findings support the notion that, under short sale constraints, stock prices selectively incorporate more optimistic opinions rather than the average opinion of all investors. Therefore, reducing short sale constraints should facilitate price discovery and improve price efficiency. This study complements recent studies examining the joint effect of short sale constraints and ex ante opinion divergence on price reactions to earnings announcements.     

Insider trading,future earnings,and post-earnings announcement drift

This paper examines the association between insider trading prior to quarterly earnings announcements and the magnitude of the post-earnings announcement drift (PEAD). We conjecture and find that insider trades reflect insiders’ private information about the persistence of earnings news. Thus, insider trades can help investors better understand and incorporate the time-series properties of quarterly earnings into stock prices in a timely and unbiased manner, thereby mitigating PEAD. As predicted, PEAD is significantly lower when earnings announcements are preceded by insider trading. The reduction in PEAD is driven by contradictory insider trades (i.e., net buys before large negative earnings news or net sells before large positive earnings news) and is more pronounced in the presence of more sophisticated market participants. Consistent with investors extracting and trading on insiders’ private information, pre-announcement insider trading is associated with smaller market reactions to future earnings news in each of the four subsequent quarters. Overall, our findings indicate insider trading contributes to stock price efficiency by conveying insiders’ private information about future earnings and especially the persistence of earnings news.     

Less timely earnings announcements and voluntary disclosure

The release of earnings information has become less timely in recent years partly because firms increasingly disclose earnings concurrently with their periodic reports (e.g., 10-Ks, 10-Qs). We examine whether firms use voluntary disclosure to mitigate the negative economic consequences of less timely earnings announcements (EAs). We find that firms with less timely EAs are more likely to provide voluntary 8-K filings over the period leading to the EA. We also find that investors’ demand for timely information, the nature of earnings news and litigation risk affect the extent to which firms provide voluntary disclosure to compensate for less timely EAs. The negative effect of less timely EAs on information asymmetry is attenuated when firms provide voluntary 8-K filings prior to EAs. Overall, our findings suggest that firms voluntarily communicate with investors using voluntary disclosure when their EAs are less timely.     

Does voluntary balance sheet disclosure mitigate post-earnings-announcement drift?

Theory suggests that balance sheet information such as total assets, total equity, or total liabilities complements earnings information in helping investors assess a firm’s profitability and estimate earnings growth. The voluntary disclosure of balance sheet information at earnings announcement could help investors gather and process this information at a lower cost. We therefore predict that voluntary balance sheet disclosure at the time of an earnings announcement helps investors promptly understand the implication of current earnings news for future earnings and subsequently reduces post-earnings-announcement drift (PEAD). Consistent with these predictions, our results show that when firms provide voluntary balance sheet disclosures, the earnings response coefficient in the event window is significantly higher and the corresponding PEAD is significantly lower. We further find that the impact of voluntary balance sheet disclosure on PEAD is more pronounced when the magnitude of balance sheet value surprise is larger, when balance sheet value is more informative about future earnings, when earnings uncertainty is higher, or when information cost is higher, consistent with our conjectures that helping investors to better understand future earnings performance and lowering information costs are key mechanisms underlying the effect of voluntary balance sheet disclosure on PEAD.     

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

This paper examines whether managers strategically time their earnings forecasts (MEFs) as litigation risk increases. We find as litigation risk increases, the propensity to release a delayed forecast until after the market is closed (AMC) or a Friday decreases but not proportionally more for bad news than for good news. How costly this behaviour is to investors is questionable as share price returns do not reveal any under‐reaction to strategically timed bad news MEF released AMC. We also find evidence consistent with managers timing their MEFs during a natural no‐trading period to better disseminate information.     

Why Do Managers Explain Their Earnings Forecasts?

Managers often explain their earnings forecasts by linking forecasted performance to their internal actions and the actions of parties external to the firm. These attributions potentially aid investors in the interpretation of management forecasts by confirming known relationships between attributions and profitability or by identifying additional causes that investors should consider when forecasting earnings. We investigate why managers choose to provide attributions with their forecasts and whether the attributions are related to security price reactions to management earnings forecasts. Using a sample of 951 management earnings forecasts issued from 1993 to 1996, we find that attributions are more likely for larger firms, less likely for firms in regulated industries, less likely for forecasts issued over longer horizons, more likely for bad news forecasts, and more likely for forecasts that are maximum type. Furthermore, attributions are associated with greater absolute price reactions to management forecasts, more negative price reactions to management forecasts (forecast news held constant), and a greater price reaction per dollar of unexpected earnings. Our findings hold after control for the aforementioned determinants of attributions and after control for other firm‐ and forecast‐specific variables that are often associated with security prices.     

Voluntary disclosure and the cost of equity capital: Evidence from management earnings forecasts

This paper examines the directional effects of management earnings forecasts on the cost of equity capital. We find that forecasters of bad news experience a significant increase in the cost of equity capital in the month after their disclosure. Conversely, the cost of equity capital for good news forecasters does not change significantly in the same period. We also indicate that the magnitude of changes in the cost of capital for good news forecasters is significantly lower than that for bad news forecasters and non-forecasters, which suggests that investors may view good news forecasts less credible. Finally, we show that the effect of the subsequent earnings announcement on the cost of equity capital is preempted by the management forecasts for bad news firms, and that the combined effects of the management earnings forecasts and the earnings announcement are not significant for both good news and bad news forecasters. Our paper contributes to the literature by adding evidence on directional effects of voluntary disclosures and on long-term economic consequences of management earnings forecasts.     

Limited attention,statement of cash flow disclosure,and the valuation of accruals

We test for the effect of limited attention on the valuation of accruals by comparing the immediate and long-term market reactions to earnings announcements between a subsample of firms that disclose only the balance sheet with a subsample of firms that disclose both the balance sheet and the statement of cash flows (SCF) in the earnings press release. Information about accruals generally can be inferred from comparative balance sheets, but the availability of the SCF makes accruals more salient and easier to process for investors with limited attention. Controlling for potential additional information and endogeneity of SCF disclosure, we find strong evidence that SCF disclosure enables more efficient pricing of accruals. Further analyses using a proxy for investor sophistication suggest that, when SCF is absent from the earnings press release, less sophisticated investors fail to discount accruals but sophisticated investors do.     

The debt market relevance of management earnings forecasts: evidence from before and during the credit crisis

We investigate the credit market’s response via changes in credit default swap (CDS) spreads to management earnings forecasts and evaluate the importance of these forecasts relative to earnings news during the periods before and during the recent credit crisis. We document that credit markets react significantly to management forecast news and that the reactions to forecast news are stronger than to actual earnings news. Consistent with the asymmetric payoffs to debt holders, the forecast news is mainly relevant for firms with poor credit rating or announcing bad news. We also show that the relevance of management forecasts to credit markets is particularly strong during periods of high uncertainty, as experienced during the recent credit crisis.     

Options trading volume and stock price response to earnings announcements

We examine the effect of options trading volume on the stock price response to earnings announcements over the period 1996–2007. Contrary to previous studies, we find no significant difference in the immediate stock price response to earnings information announcements in samples split between firms with listed options and firms without listed options. However, within the sample of firms with listed options stratified by options volume, we find that higher options trading volume reduces the immediate stock price response to earnings announcements. This conforms with evidence that stock prices of high options trading volume firms have anticipated and pre-empted some earnings information in the pre-announcement period. We also find that higher abnormal options trading volume around earnings announcements hastens the stock price adjustment to earnings news and reduces post-earnings announcement drift.