The Information Content of Guidance and Earnings

I compare the information content of quarterly earnings guidance and quarterly earnings by examining their associations with current and future stock returns when the two signals are bundled at earnings announcements. At the bundled announcement, I find a significantly stronger association between announcement returns and guidance news. From the day after the bundled announcement through the next earnings announcement, both signals generate abnormal return drifts of about 200 basis points. However, the timing of the post-announcement returns differs considerably. For guidance, about 50% of the post-announcement drift occurs at the next earnings announcement. In contrast, for earnings, about 20% of the preceding drift reverses at the next earnings announcement. Investor ignorance of the drift following guidance news coupled with a fixation on post-earnings announcement drift potentially explains this surprising difference in the timing of the post-announcement returns. Overall, this study indicates that bundled quarterly earnings guidance contains more information than quarterly earnings and that investors incorrectly overweight the earnings news and underweight the guidance news during the post-announcement period until the next earnings announcement.     

年报信息披露的超常收益及其影响因素

与年报盈余公告效应的研究不同,本文在拓展年报信息考虑范围的基础上,检验盈余信息、股利信息、账市比、成长性和财务风险等年报披露信息对不同公司规模的超常收益的解释能力。研究结果表明,年报信息披露窗口存在显著超常收益,账市比、盈余信息、股利信息对该超常收益有显著的解释能力,因为在大多数公司规模中,账市比、盈余信息的极端值含有股票未来收益的信息,账市比、盈余信息、股利信息对超常收益有显著的边际影响;但成长性和财务风险等年报信息仅对部分公司规模的超常收益有解释能力。     

How Important are Earnings Announcements as an Information Source?

In a competitive information market, a single information source can only dominate other sources individually, not collectively. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar's (2008) [How much new information is there in earnings?, Journal of Accounting Research, 2008, 46(5), pp. 975–1016] R ² metric: the proportion of the variation in annual returns explained by the four quarterly earnings announcement returns. We find that the earnings announcement days' R ² is 11% – higher than the corresponding R ² of days with dividend announcements, management forecasts, preannouncements, and 10-K and 10-Q filings and their amendments, and comparable to that of the four days with the largest realised absolute returns in a year. Additional analysis reveals that earnings announcements convey extreme bad news as often as management forecasts and preannouncements; for any other type of news, earnings announcements are much more frequent. We conclude that earnings announcements are an important source of new information in the equity market.     

Capitalization of R&D and the Informativeness of Stock Prices

Abstract

This paper presents both a new approach to studying the consequences of accounting choice and a unique sample to examine the effects of accounting choice in the R&D context. We investigate the effect of firms' decision to capitalize R&D expenditures on the amount of information about future earnings reflected in current stock returns, as captured by the association between current-year returns and future earnings (FERC). We use a sample of UK firms, which includes both R&D capitalizers and expensers. An important feature of our tests is our use of a two-equation system to control for the endogeneity of the accounting choice (i.e. self-selection). Proponents of capitalization claim that it enables management to better communicate information about the success of projects and their probable future benefits. Consistent with this, we find that capitalization is associated with higher FERC than expensing.     

<Emphasis Type="BoldItalic">Mad Money</Emphasis> stock recommendations: market reaction and performance

We examine the stock recommendations of Jim Cramer televised on CNBC’s Mad Money, and document significant market reactions (i.e., announcement returns and volume) to Cramer’s recommendations, particularly for small capitalization stocks. The following findings indicate that the announcement returns are primarily due to price pressure from uninformed trading as opposed to the recommendations providing new value related information: announcement returns reverse following buy recommendations; bid-ask spreads temporarily decline; and there is no evidence of positive longer-term abnormal returns. One implication, when considered in combination with other works, is that investors should be cautious in following stock recommendations announced in the mass-media.     

The European Market Abuse Directive: Has it Worked?

In this paper, we examine whether the Market Abuse Directive (MAD) has been effective in achieving its objectives of deterring the market manipulation activities, increasing the timeliness of information and decreasing the disclosure of inside information to select groups. Our sample consists of firms listed on Frankfurt Stock Exchange. We use stock prices and analysts' forecast‐based proxies to examine the impact and effectiveness of MAD. The analysis based on these two set of proxies provides evidence that the adoption of MAD has been effective. In particular, we find that after the implementation of MAD, on average, (1) the volatility of stock prices around earnings announcement declines, (2) stock prices remain closer to their post earnings announcement level during the period before earnings announcement, (3) the accuracy of analyst forecasts improves, (4) the dispersion of analyst forecasts decreases, and (5) the number of analysts following a company declines.     

Relative information asymmetry as a determinant of the market reaction to corporate financing announcements

Information-asymmetry-based models predict that the market should react negatively to unanticipated external financing. Previous empirical studies lend limited support to these conjectures. This study examines the anticipation issue using financial analysts' earnings-forecast errors as a proxy for information available prior to the external-financing announcement. The conjecture is that external financing would be less anticipated for firms which financial analysts cannot accurately predict their earnings. Event study results indicate that high-prediction-error firms exhibit significantly lower announcement period returns than lowprediction-error firms for non-convertible debt, convertible debt, and common stock offerings.     

Dissemination of Accruals Information,Role of Semi‐Annual Reporting,and Analysts' Earnings Forecasts: Evidence from Japan

Our study investigates the effects of dissemination of accounting accruals information on stock prices using Japanese annual reports as our sample. We conduct month‐by‐month detailed analyses of price adjustment behavior with a particular focus on revisions of analysts' earnings forecasts and changes in trading volume around the period of upcoming semi‐annual reports. We find that analysts' forecasts are often revised around this time, and analysts use this as auxiliary information. In addition, an accompanying re‐adjustment of abnormal returns and an increase in trading volume are observed. Our findings demonstrate that informational uncertainty initially triggered by the announcement of annual reports decreases as semi‐annual reports are disclosed and analysts change their earnings forecasts, and confirms the importance of semi‐annual reporting.     

股价波动与信息公告方式相关性研究

文章首先构造赢家(输家)组合,并根据信息公告方式定义信息类型属于私人信息还是公开信息,然后考察股价波动与信息发布方式的关系。通过实证研究,我们发现:股价波动和信息的公布方式存在紧密的联系,其中赢家组合整体表现出明显的收益反转现象,对私人信息存在过度反应;输家组合虽整体上未表现出明显的惯性现象或者反转现象,但其对私人信息表现出明显的过度反应。     

The relationship between accounting numbers and returns: some empirical evidence from the emerging market of the Czech Republic

Generally, stock prices reflect future expectations of earnings, whereas accounting data reflect past performance. This paper attempts to discover the relationship between accounting data and market price returns of the companies listed on the Prague Stock Exchange (PSE). The Prague Stock Exchange was established in 1993 and provides an opportunity to make a comparison between a newly established market and the findings of studies of established markets. There has been a wealth of publications and accounting research studies on developed markets. Generally, accounting attributes are thought to be relevant because they tend to be contemporaneously statistically associated with stock prices. Some studies have suggested, and empirically tested, that stock prices lead earnings (e.g. Collins et al., 1987; Kothari, 1992; Kothari and Sloan, 1992; Kothari and Zimmerman, 1995). This study tests the existence of such a relationship in the Czech capital market, relying partially on the methodology proposed by Kothari and Sloan (1992) and Kothari (1992). This paper investigates whether there is a statistically significant permanent relationship between returns and accounting data on the Czech market. The study was conducted using accounting earnings and stock prices during the period 1993–8. The empirical evidence here suggests that a similar relation exists on the emerging Czech market. The relation is statistically significant for measurement windows of one year and longer. The increase in the mean response coefficient, reported later in this study, suggests that one-leading-year returns are as important as contemporaneous returns in terms of their sensitivity to annual earnings changes. However, one cannot infer with a degree of confidence that the Czech capital market views earnings changes to be largely permanent, which would be consistent with the time-series properties of annual earnings.     

Extracting Sustainable Earnings from Profit Margins

Revenues and expenses are fundamentally proportional to one another, but are likely to be disproportionally affected by transitory items or economic shocks. We build on this observation and propose a new measure of sustainable earnings based on deviations from normal profit margins. While some other sustainable earnings metrics attempt to identify transitory components on a line-by-line basis, our measure, referred to as the intensity of core earnings (ICE), uses ratio analysis to extract the transitory portion of earnings from all line items. We find that the ICE, as measured here, is positively associated with earnings persistence, better earnings predictability, and stronger market reaction to unexpected earnings. We also find that our measure is positively associated with post-earnings announcement excess stock returns. Comparing our measure with an accrual-based measure of earnings quality, we find that, in general, the two metrics provide distinct incremental information relative to one another and in some instances our measure is better than an accrual-based measure in assessing earnings quality.     

The Information Content of Concurrently Announced Earnings, Cash Dividends, and Stock Dividends: An Investigation of the Chinese Stock Market

The firms listed on China's stock market are less than ten years old and to date there has been relatively little research on the usefulness of their accounting disclosures for investors. This study focuses on the information content of annual earnings and dividend announcements made by listed Chinese companies. Earnings, cash dividends, and stock dividends are announced concurrently in China and so this allows for tests of their information usefulness and of the interactions between the three signals. Based on a data set of up to 1,232 announcements, we find that unexpected earnings, proxied by earnings changes, are positively related to abnormal returns. Thus, earnings are used by investors in setting market prices. Stock dividends corroborate or attenuate the earnings signal. If the sign of the unexpected stock dividend (increase, decrease) is the same as the sign of the unexpected earnings, then the earnings signal is stronger. If the signs are opposite, the earnings signal is weaker. Unexpected cash dividends have little impact on the earnings signal. Stock dividends per se have a small association with stock returns. In contrast, cash dividends have no discernible association with stock returns and this is consistent with dividend irrelevance arguments. Our results are robust across a number of sensitivity tests.     

Accounting earnings and firm valuation: the French case

Considering that the level of the association between stock returns and accounting earnings provides a measure of the extent to which earnings summarize the information which is useful for firm valuation, this paper analyses the contemporaneous association between stock returns and earnings changes or earnings level of individual French stocks and portfolios for periods of one, two and five years between 1981 and 1990. The empirical findings are as follows. (a) Stock returns are more linked to earnings changes than to earnings levels indicating that earnings provide more information about changes in firm value than about firm value. (b) Earnings prepared in accordance with the French accounting principles are not less value-relevant than those prepared in accordance with US or UK GAAP. (c) A cross-sectionally and time-aggregated data procedure provides a large increase in the explanatory power of earnings for returns which is consistent with a noise-in-earnings effect probably induced by accounting measurement and valuation principles and with a recognition lag effect due to the fact that value-relevant events are not integrated into earnings exactly when they occur. These two effects are shown to be the major causes of the low association between earnings and returns generally observed in studies based on short period data for individual stocks.     

Evidence of EC financial reporting practice harmonization

This paper provides new evidence on the information content of losses in the relation between stock returns and annual accounting earnings. Consistent with earlier US evidence, accounting losses are not significantly related to stock returns in Finland. Moreover, it is shown that the different methods used to measure earnings in Finland affect the frequency of losses, substantially altering the estimated return-earnings relation. The results suggest that earnings adjusted in accordance with the recommendations of the Finnish Committee for Corporate Analysis are not more useful than the unadjusted reported earnings in explaining stock returns in Finland.     

Implications of limited investor attention to customer–supplier information transfers

This study focuses on the market reaction to information transfers from economically linked customers. I examine whether investors have limited attention with respect to the information contained in customer earnings announcements for suppliers. Using 1083 unique customer–supplier relationships for the period 1983–2011, I find that the cumulative abnormal returns of a supplier surrounding and following linked customers’ earnings announcements are positively related to the earnings information of the customers, suggesting that customer earnings announcements convey information to suppliers. I also find that the post-earnings announcement drift in customers contributes to the cross-firm reaction, and the predictability of customer earnings surprises for suppliers’ future returns is not entirely due to limited investor attention.     

The reaction of security prices to tracking stock announcements

This paper provides some empirical evidence on a relatively new and increasingly prevalent form of equity restructuring called tracking stock. We identify the effects associated with tracking stock announcements by excluding from our sample those announcement events that include other significant news announcements on the event date, such as announcements of acquisitions and earnings. For the 35 announcement events that fit this criteria, we find a mean abnormal return of over 3 percent in the two-day period surrounding the announced proposal to issue a tracking stock, with 30 of the 35 firms in the sample earning positive abnormal returns. The views expressed in this paper are that of the author(s) and do not reflect the views or opinions of Deutsche Bank Securities Inc. or any of its affiliates.     

The stock performance of America's 100 Best Corporate Citizens

We consider the stock performance of America's 100 Best Corporate Citizens following the annual survey by Business Ethics. We examine both possible short-term announcement effects around the time of the survey's publication, and whether longer-term returns are higher for firms that are listed as good citizens. We find some evidence of a positive market reaction to a firm's presence in the Top 100 firms that are made public, and that holders of the stock of such firms earn small abnormal returns during an announcement window. Over the year following the announcement, companies in the Top 100 yield negative abnormal returns of around 3%. However, such companies tend to be large and with stocks exhibiting a growth style, which existing studies suggest will tend to perform poorly. Once we allow for these firm characteristics, the poor performance of the highly rated firms declines. We also find companies that are newly listed as good citizens and companies in the Top 100 but outside the S&P 500 can provide considerable positive abnormal returns to investors, even after allowing for their market capitalization, price-to-book ratios, and sectoral classification.     

Stock price reactions to stock dividend announcements: A case from a sluggish economic period

The 2007 financial crisis and the Great Recession that followed resulted in a loss of confidence among investors, and regaining their full trust and confidence has been a challenge for companies. Although economic growth has been volatile throughout the postwar World War II period, recent growth (2008–2015) has been remarkably weaker than in the previous low-growth period (1974–1995). The 2006–2015 period is often characterized by sluggish economic growth. This study investigates stock price reactions to stock dividend announcements, 30 days before and after the announcement dates, of publicly traded companies in the period 2006–2012. We use an event study methodology for 460 events and daily stock price data for companies in the CRSP historical data set. The study shows a significant reaction in stock prices around the event date. On average, stock prices reacted positively to stock dividend announcements. However, compared to previous findings of abnormal returns (5.9%), results from this study show small abnormal returns (about 1.81%) attributable to stock dividend announcements that are cumulative of the announcement day and up to 3-day post-announcement days. Our estimates are even lower than the 2.01% stock price reaction obtained in the 1987–1996 period.     

The Information Content of Earnings Components: Evidence from the Chinese Stock Market

China's listed firms report substantial non-operating revenues and expenses. We argue that these non-core earnings should have different properties and different valuation implications than operating or core earnings. Furthermore, the different types of firm ownership may have differential impacts on the information content of earnings components. Based on data from 1996 to 2008, we find that core earnings are more persistent than non-core earnings. Because of this, core earnings have a greater association with contemporaneous stock returns. However, the stock market does not fully incorporate all the information in earnings; we find that core earnings are undervalued and non-core earnings are overvalued. This effect is much reduced for privately controlled listed firms. We develop an investment trading strategy to exploit these market inefficiencies.     

衍生品交易盈亏披露会影响瞬时股价吗？——基于2020年A股上市公司的分析

对2020年A股上市公司披露信息中含衍生品交易盈亏信息的数据进行多期双重差分分析，发现衍生品信息无论利好还是利空，皆存在显著负面的公告溢价。衍生品披露当日瞬时股价、3～5个交易日窗口期的累计异常收益率显著下跌，且衍生品信息不会显著影响该股票长期价值。细分披露类型发现，定期披露的衍生品信息导致的瞬时股价波动较小，且具有更显著的公告盈余漂移。