Getting bad news out early: does it really help stock prices?

Chris Downing and Steven Sharpe

No 2003-58, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we examine the stock price benefit of meeting or beating earnings expectations. Using a general methodology, we find no evidence that the timing of earnings news has any benefit for firms' stock returns. In fact, in many cases we find firms attempting to engineer positive earnings surprises by beating down expectations only to discover that their efforts are counterproductive. Our results appear to overturn the findings of previous authors who, using less general methodologies, have suggested that firms can boost their stock returns by getting bad news out early. Our results are robust across time periods, for different scaling factors on earnings revisions and surprises, when controlling for firm size and growth prospects, and when conditioned on past earnings news.

Keywords: Stock; -; Prices (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-fmk
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