Corporate governance, market conditions and investors’ reaction to information signals

Nawaf Almaskati, Ron Bird, Danny Yeung and Yue Lu
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Ron Bird: University of Waikato, Hamilton, New Zealand
Danny Yeung: University of Technology Sydney, Sydney, NSW, Australia
Yue Lu: University of Waikato, Hamilton, New Zealand

Australian Journal of Management, 2023, vol. 48, issue 1, 38-66

Abstract: We examine and compare the extent to which the reaction of investors to earnings announcements is influenced by a firm’s governance profile and prevailing market conditions. We find that firms with better governance characteristics experience a larger initial reaction to both good and bad earnings announcements regardless of the prevailing sentiment and uncertainty conditions. However, the influence of governance is constrained to the announcement period. We demonstrate that changes in market uncertainty and/or investor sentiment are related to the post-earnings announcement drift. We also find that a major channel through which greater corporate governance influences the market response to unexpected earnings news is by lowering information uncertainty and so providing greater clarity of the implication of the news for firm value. Finally, we establish that two types of uncertainties (market and information) have very different influence on investor’s response to information signals. JEL Classification: D81, G10, G14, G30, G32

Keywords: Corporate governance; information signals; information uncertainty; post-earnings announcement drift; sentiment; uncertainty (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:48:y:2023:i:1:p:38-66

DOI: 10.1177/03128962221096492

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