Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

How Much New Information Is There in Earnings?

How Much New Information Is There in Earnings? ABSTRACT We quantify the relative importance of earnings announcements in providing new information to the share market, using the R2 in a regression of securities' calendar‐year returns on their four quarterly earnings‐announcement “window” returns. The R2, which averages approximately 5% to 9%, measures the proportion of total information incorporated in share prices annually that is associated with earnings announcements. We conclude that the average quarterly announcement is associated with approximately 1% to 2% of total annual information, thus providing a modest but not overwhelming amount of incremental information to the market. The results are consistent with the view that the primary economic role of reported earnings is not to provide timely new information to the share market. By inference, that role lies elsewhere, for example, in settling debt and compensation contracts and in disciplining prior information, including more timely managerial disclosures of information originating in the firm's accounting system. The relative informativeness of earnings announcements is a concave function of size. Increased information during earnings‐announcement windows in recent years is due only in part to increased concurrent releases of management forecasts. There is no evidence of abnormal information arrival in the weeks surrounding earnings announcements. Substantial information is released in management forecasts and in analyst forecast revisions prior (but not subsequent) to earnings announcements. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

How Much New Information Is There in Earnings?

Download PDF
42 pages

Loading next page...
 
/lp/wiley/how-much-new-information-is-there-in-earnings-bMOtDcWAd0

References (72)

Publisher
Wiley
Copyright
©, University of Chicago on behalf of the Institute of Professional Accounting, 2008
ISSN
0021-8456
eISSN
1475-679X
DOI
10.1111/j.1475-679X.2008.00299.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We quantify the relative importance of earnings announcements in providing new information to the share market, using the R2 in a regression of securities' calendar‐year returns on their four quarterly earnings‐announcement “window” returns. The R2, which averages approximately 5% to 9%, measures the proportion of total information incorporated in share prices annually that is associated with earnings announcements. We conclude that the average quarterly announcement is associated with approximately 1% to 2% of total annual information, thus providing a modest but not overwhelming amount of incremental information to the market. The results are consistent with the view that the primary economic role of reported earnings is not to provide timely new information to the share market. By inference, that role lies elsewhere, for example, in settling debt and compensation contracts and in disciplining prior information, including more timely managerial disclosures of information originating in the firm's accounting system. The relative informativeness of earnings announcements is a concave function of size. Increased information during earnings‐announcement windows in recent years is due only in part to increased concurrent releases of management forecasts. There is no evidence of abnormal information arrival in the weeks surrounding earnings announcements. Substantial information is released in management forecasts and in analyst forecast revisions prior (but not subsequent) to earnings announcements.

Journal

Journal of Accounting Research – Wiley

Published: Dec 1, 2008

There are no references for this article.