Profit Warnings and Timing

Dave Jackson and Jeff Madura

The Financial Review, 2003, vol. 38, issue 4, 497-513

Abstract: We find that profit‐warning announcements elicit a strong negative market response that is not sensitive to timing the warning in advance of the earnings announcement. Share prices begin to adjust about five days before a profit warning, and the market response is not complete until about five days after the warning. The accumulated response over the 11‐day period ending five days after the announcement is −21.7%. The profit warning effect over the two‐day announcement period is 32 times the valuation effect upon subsequent release of the actual earnings. There is no evidence of a reversal after this period, and therefore no sign that the market response is excessive.

Date: 2003
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