Voluntary Disclosures in Earnings Announcements and Coincident Market Reactions

We investigate three explanations for prior studies' finding that the usefulness of earnings announcements, as measured by their absolute market responses, has increased over time. We confirm this increase for a sample of 426 relatively large, stable firms over 1980–1999. We find no evidence that this over-time increase in the magnitude of the market reaction to our sample firms' earnings announcements is attributable to increases in the absolute amount of unexpected earnings conveyed in the announcements or to increases in the intensity of investors' average reaction to unexpected earnings. To test the third explanation—an over-time expansion in the amount of concurrent (with bottom line earnings) information in earnings announcement press releases—we analyze and code the contents of 2,190 earnings announcement press releases made by 30 of our sample firms over 1980–1999. Concurrent disclosures increased significantly over this period and we find that these concurrent disclosures, especially the inclusion of detailed income statements, explain increases in the absolute market reactions to earnings announcements for our sample firms.

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Accounting Methods and Differential Stock Market Response to the Announcement of Earnings

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9300800304 ◽

1993 ◽

Vol 8 (3) ◽

pp. 221-246 ◽

Cited By ~ 6

Author(s):

Morton Pincus

Keyword(s):

Stock Market ◽

Earnings Announcements ◽

Empirical Support ◽

Order Effect ◽

Cross Sectional ◽

Market Reactions ◽

Earnings Response Coefficients ◽

Earnings Response ◽

Reported Earnings ◽

Stock Market Reactions

The objective of this study is to assess the extent to which previously documented cross-sectional differences in stock market responses to earnings announcements are associated with firms' in-place voluntary accounting method choices. The possibility that managers may manage reported earnings via the choice of accounting policies provides a motivation for the study. Some conjectures about differences in “noise” in earnings signals generated under alternative accounting methods are developed and tested by estimating firm-specific earnings response coefficients. Both individual method choices (e.g., LIFO versus FIFO) and accounting method portfolios (conservative versus liberal sets of depreciation, inventory, and investment tax credit accounting alternatives) are examined. Overall there is little empirical support for the proposition that voluntary accounting method choices have a pervasive first-order effect on stock market reactions to earnings announcements.

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