Do record earnings affect market reactions to earnings news?

Juwon Jang () and Eunju Lee ()
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Juwon Jang: University of Massachusetts Lowell
Eunju Lee: University of Massachusetts Lowell

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 4, No 2, 1259-1287

Abstract: Abstract We find evidence that a firm’s record earnings influence market response to earnings news. Our results show that the proximity of the firm’s earnings to its record earnings leads to investors’ underreaction following earnings announcements, exacerbating post-earnings-announcement drift. Such biased behavior is more pronounced in low-growth firms and firms with low institutional ownership. Meanwhile, analysts are not subject to this anchoring bias when a firm’s earnings are close to its record earnings. Overall, we find that a firm’s record earnings play an important role as an anchor when market participants evaluate the firm’s earnings news.

Keywords: Record earnings; Anchoring bias; Post-earnings-announcement drift; Analyst forecast revisions (search for similar items in EconPapers)
JEL-codes: G11 G41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-020-00927-4

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