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Market reactions to unexpected relative earnings performance

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  • Yen-Jung Lee

Abstract

This paper documents that investors value unexpected changes in a firm’s relative earnings performance (REP) in addition to its absolute earnings surprise on the firm’s earnings announcement date. Consistent with REP filtering out industry-wide common shocks and conveying information about the firm’s competitive advantage over its industry peers, investors react more strongly to unexpected relative earnings for firms with a stronger peer-firm earnings correlation and for firms with fewer growth options in their operations relative to their industry peers. Moreover, current unexpected REP is positively associated future growths in sales, market share, and earnings performance, suggesting that firms with stronger REP are better able to capture future industry opportunities.

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  • Yen-Jung Lee, 2017. "Market reactions to unexpected relative earnings performance," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 339-357, October.
    • Handle: RePEc:taf:raaexx:v:24:y:2017:i:3-4:p:339-357
    DOI: 10.1080/16081625.2016.1213645
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    References listed on IDEAS

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