Return windows and the value relevance of earnings

Research on the value relevance of annual earnings commonly accumulate stock returns over a 12-month period starting from the fourth month of the fiscal year, resulting in a mismatch between the return window and the earnings period (i.e. the fiscal year). By comparing this return window with alternative windows, we show that the mismatch produces a downward bias in the estimated R² from the regression of stock returns on earnings, especially for firms that announce earnings early. Our results also show that both profits and losses are more value relevant when announced earlier, supporting regulatory calls for timely disclosure.