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The timing of industry and firm earnings information in security prices: A re-evaluation

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  • Elgers, Pieter T.
  • Porter, Susan L.
  • Emily Xu, Le

Abstract

This paper re-evaluates evidence in Ayers and Freeman [Ayers, F., Freeman, R., 1997. Market assessment of industry and firm earnings information. Journal of Accounting and Economics 24, 205-218] suggesting that investors anticipate industry-wide components of earnings earlier than firm-specific components, and that post-earnings-announcement drift following annual earnings announcements is due primarily to firm-specific components of earnings. Our tests indicate that post-announcement drift is entirely attributable to coefficient bias due to measurement errors in the use of realized earnings changes as proxies for unexpected earnings. Also, coefficient differences in the market's anticipation of subsequent-year industry and firm-specific earnings become insignificant when we introduce suitable controls for non-linearity in the return/earnings relation.

Suggested Citation

  • Elgers, Pieter T. & Porter, Susan L. & Emily Xu, Le, 2008. "The timing of industry and firm earnings information in security prices: A re-evaluation," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 78-93, March.
    • Handle: RePEc:eee:jaecon:v:45:y:2008:i:1:p:78-93
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    References listed on IDEAS

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    Cited by:

    1. Chung, Dennis Y. & Hrazdil, Karel & Trottier, Kim, 2015. "On the efficiency of intra-industry information transfers: The dilution of the overreaction anomaly," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 153-167.
    2. Hamberg, Mattias & Beisland, Leif-Atle, 2014. "Changes in the value relevance of goodwill accounting following the adoption of IFRS 3," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 23(2), pages 59-73.
    3. Baker, H. Kent & Ni, Yang & Saadi, Samir & Zhu, Hui, 2019. "Competitive earnings news and post-earnings announcement drift," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 331-343.
    4. Hui, Kai Wai & Nelson, Karen K. & Yeung, P. Eric, 2016. "On the persistence and pricing of industry-wide and firm-specific earnings, cash flows, and accruals," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 185-202.
    5. Kai Wai Hui & P. Eric Yeung, 2013. "Underreaction to Industry‐Wide Earnings and the Post‐Forecast Revision Drift," Journal of Accounting Research, Wiley Blackwell, vol. 51(4), pages 701-737, September.
    6. Martineau, Charles, 2021. "Rest in Peace Post-Earnings Announcement Drift," SocArXiv z7k3p, Center for Open Science.

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