Unintended Effects of Preannouncements on Investor Reactions to Earnings News*

Jeffrey S. Miller

Contemporary Accounting Research, 2006, vol. 23, issue 4, 1073-1103

Abstract: This study uses an experiment to examine three alternative theoretical explanations for the unintended effects of preannouncements on investor reactions to earnings news. The theoretical explanations are cue consistency, recency effects, and diminishing marginal reactions. The experiment varies the amount of a management preannouncement at five different levels while holding constant consensus analyst expectations prior to the preannouncement and the subsequent earnings announcement. Participants provide preliminary forecasts of current†and next†period earnings per share (EPS) prior to the preannouncement, after the preannouncement, and after the earnings announcement. The pattern of participants' final next†year EPS forecasts and the results of follow†up analyses appear most consistent with the predictions of diminishing marginal reactions and, to a somewhat lesser extent, cue consistency, suggesting that both mechanisms play a role in determining the effects of preannouncements. There is little evidence supporting recency effects. Finally, supplemental evidence indicates that participants are unaware that preannouncements influence their reactions to earnings news, suggesting that the effects are unintended. This study has implications for managers who make preannouncement disclosure decisions and for academics who wish to understand and interpret prior research on earnings preannouncements.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1506/NX14-108L-581W-1Q00

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:wly:coacre:v:23:y:2006:i:4:p:1073-1103

Access Statistics for this article

More articles in Contemporary Accounting Research from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().