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Intra-industry information transfer effects of leading firms’ earnings narratives

Author

Listed:
  • Richard Cazier

    (University of Texas – El Paso)

  • Rosemond Desir

    (Florida Atlantic University)

  • Ray J. Pfeiffer

    (TCU)

  • Lumina Albert

    (Colorado State University)

Abstract

We investigate whether there are information transfers related to the narratives accompanying earnings announcements in the same way there are for bottom-line earnings numbers. Our study is motivated by the conjecture that the narratives accompanying earnings press releases may contain industry-relevant information beyond that conveyed by the earnings number. If so, we expect earnings narratives to trigger distinct information transfer to industry-related peers. Our empirical tests confirm that, after controlling for the earnings information transfer, when industry leaders report positive earnings news and cite external causes, industry peers experience share price increases. Conversely, when industry leaders experience earnings disappointments and cite external causes, industry peers experience share price declines. We also find that the level of industry concentration plays a significant role in these relationships. These findings add to our understanding of the dynamics underlying co-movement of share prices within an industry. Additionally, these findings provide insights into another (previously undiscovered) means by which earnings narratives have relevance for investors.

Suggested Citation

  • Richard Cazier & Rosemond Desir & Ray J. Pfeiffer & Lumina Albert, 2020. "Intra-industry information transfer effects of leading firms’ earnings narratives," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 29-49, January.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:1:d:10.1007_s11156-018-0782-x
    DOI: 10.1007/s11156-018-0782-x
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    Cited by:

    1. Bergsma, Kelley & Tayal, Jitendra, 2020. "Quarterly earnings announcements and intra-industry information transfer from the Pacific to the Atlantic," International Review of Financial Analysis, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Information transfer; Earnings release; Textual analysis;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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