Differential Market Reactions to Revenue and Expense Surprises

Yonca Ertimur, Joshua Livnat () and Minna Martikainen
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Yonca Ertimur: New York University
Joshua Livnat: New York University
Minna Martikainen: Laurea Polytechnic

Review of Accounting Studies, 2003, vol. 8, issue 2, No 4, 185-211

Abstract: Abstract This study investigates investors' reactions to revenue and expense surprises around preliminary earnings announcements. Results show that investors value more highly a dollar of revenue surprise than a dollar of expense surprise. Results further show that these differential market reactions to revenue and expense surprises vary systematically for growth versus value firms and depend on (a) the proportion of variable to total costs, (b) the relative persistence of sales and expenses, and (c) the proportion of operating to total expenses. Results highlight the importance of interpreting the earnings surprise in the context of its sources—e.g. surprise in revenues or in total expenses.

Keywords: revenue forecasts; sales and expense surprises; value-growth; earnings management (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1023/A:1024409311267

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