The Effect of Reporting Streaks on Ex Ante Uncertainty

Thaddeus Neururer (), George Papadakis () and Edward J. Riedl ()
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Thaddeus Neururer: George W. Daverio School of Accountancy, College of Business Administration, University of Akron, Akron, Ohio 44325
George Papadakis: Office of Corporate Finance, U.S. Securities and Exchange Commission, Washington, District of Columbia 20549
Edward J. Riedl: Accounting Department, Questrom School of Business, Boston University, Boston, Massachusetts 02215

Management Science, 2020, vol. 66, issue 8, 3771-3787

Abstract: This paper predicts and finds that investor uncertainty surrounding a key information release event—the earnings announcement—is decreasing in a firm’s reporting streak. We use two proxies related to investor ex ante uncertainty and corresponding pricing of such uncertainty: option-implied volatilities and variance risk premiums; both are measured with maturities surrounding the impending quarterly earnings announcement. Consistent with prior research, we measure reporting streak as the number of consecutive quarters the firm meets or beats the consensus analyst earnings-per-share forecast. Empirical results confirm expectations that the two uncertainty-related constructs are decreasing in the length of the reporting streak. These results, combined with further evidence documenting that lower uncertainty leads to lower stock returns surrounding the earnings announcements, suggest that longer reporting streaks reflect lower risk during earnings announcements.

Keywords: uncertainty; implied volatilities; variance risk premium; earnings announcements; reporting streak; meet or beat analyst forecasts (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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