The stock price effects of changes in dispersion of investor beliefs during earnings announcements |
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Authors: | Lynn Rees Wayne Thomas |
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Institution: | (1) Department of Accounting, Mays School of Business, Texas A&M University, College Station, TX 77843-4353, USA;(2) John T. Steed School of Accounting, Michael F. College of Business, University of Oklahoma, Norman, OK 73019-4004, USA |
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Abstract: | Existing research provides competing theories about how dispersion of investor beliefs might affect stock prices. We measure
changes in dispersion of investor beliefs around earnings announcements using changes in the dispersion of individual analysts’
forecasts. We find that the 3-day market response to earnings announcements is negatively associated with changes in dispersion,
consistent with the cost of capital hypothesis. The results hold after controlling for the current earnings surprise, forecast
revisions of future earnings, and reported earnings relative to various earnings thresholds. Our study provides new insight
about the information contained in earnings announcements that is incremental to the magnitude and timing of cash flows. |
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