Stock Price Behavior Around Announcements of Write-Offs

Eli Bartov, Frederick W. Lindahl and William E. Ricks
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Eli Bartov: New York University
Frederick W. Lindahl: George Washington University
William E. Ricks: Rosenberg Institutional Equity Management

Review of Accounting Studies, 1998, vol. 3, issue 4, No 1, 327-346

Abstract: Abstract Is it plausible that important corporate events such as write-offs, averaging around 20% of firms' market values, are associated with stock-price responses of less than 1%? We investigate this question by observing a lengthy period before and after the announcement date. We find, as suggested by previous studies, that price declines precede write-off announcements. We find what has not been found before: abnormal returns continue to decline after the announcement by as much as 21% annually for a two-year period. This significant stock-price underperformance is also observed around subsequent earnings announcements, and is robust to various risk-adjustment techniques. Our findings are important on two counts: they (1) suggest that disclosure standards may not be sufficient to allow market agents to understand the economic consequences of the write-offs, and (2) reveal a substantial mispricing, which is inconsistent with market efficiency.

Keywords: Economic Consequence; Abnormal Return; Market Efficiency; Earning Announcement; Announcement Date (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1009644800963

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