EconPapers    
Economics at your fingertips  
 

Is the market surprised by the surprise?

Khine Kyaw, Mojisola Olugbode () and Barbara Petracci
Additional contact information
Khine Kyaw: NTNU
Mojisola Olugbode: Plymouth University
Barbara Petracci: University of Bologna

International Journal of Disclosure and Governance, 2020, vol. 17, issue 1, 20-29

Abstract: Abstract This study examines how the market reacts to earnings surprises with different characteristics such as future earnings prospects and historical surprises embedded in the earnings announced. We also explore the effect of corporate governance on market reaction to earnings information disseminated through earnings announcements. The sample comprises of 1620 US firms for the period 2002–2016. Using a regression-based approach, the results reveal that the market reacts to earnings surprises, particularly, to their sign, magnitude, persistence, and the future earnings prospects. Moreover, these different characteristics of earnings surprises are more important for negative surprises than for positive surprises. Furthermore, we find evidence for the information transparency theory that earnings announcements are a relatively more important source of information for low-corporate-governance firms than for high-corporate-governance firms. Finally, historical earnings information is more relevant for low-corporate-governance firms, whereas prospective earnings information is more important for high-corporate-governance firms. This study contributes to the extant literature by revealing that the market does not only react to the magnitude/sign of the surprises but also to other additional characteristics of earnings surprises. The study also reveals that firm governance influences how the market reacts to earnings information announced. Consequently, managers should be mindful that strengthening corporate governance could improve investors’ confidence in earnings announced.

Keywords: Earnings announcement; Earnings surprise; Market reaction; Persistence; Corporate governance (search for similar items in EconPapers)
JEL-codes: G14 G30 M14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1057/s41310-020-00071-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:ijodag:v:17:y:2020:i:1:d:10.1057_s41310-020-00071-4

Ordering information: This journal article can be ordered from
https://www.palgrave.com/gp/journal/41310

DOI: 10.1057/s41310-020-00071-4

Access Statistics for this article

International Journal of Disclosure and Governance is currently edited by Michael Alles

More articles in International Journal of Disclosure and Governance from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2020-05-02
Handle: RePEc:pal:ijodag:v:17:y:2020:i:1:d:10.1057_s41310-020-00071-4