Earnings characteristics and analysts’ differential interpretation of earnings announcements: An empirical analysis |
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| Authors: | Anwer S Ahmed Minsup Song Douglas E Stevens |
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| Institution: | 1. Mays Business School, Texas A&M University, College Station, 77843‐4113, USA;2. College of Business Administration, Sogang University, Seoul, 121‐742, South 3. Korea;4. College of Business, Florida State University, Tallahassee, 32306‐1110, USA |
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| Abstract: | This study provides empirical evidence on factors that drive differential interpretation of earnings announcements. We document that Kandel and Pearson's forecast measures of differential interpretation are decreasing in proxies for earnings quality and pre‐announcement information quality. This evidence yields new and useful insights regarding which earnings announcements are less likely to generate newfound disagreement among analysts and investors. Recent research suggests that investor disagreement can increase investment risk, increase the cost of capital, and cause stock prices to deviate from fundamental value. Therefore, our results support prior intuition that increasing the quality of earnings and pre‐announcement information can improve the efficiency of capital markets. |
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| Keywords: | Differential interpretation Earnings announcements Analyst forecasts G14 M41 |
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