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Do Profit Warnings Convey Information About the Industry?

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Dave Jackson

    (Department of Finance, College of Business, University of Texas–Pan American, 1201 West University Drive, Edinburg, Texas 78541-2999, USA)

  • Jeff Madura

    (Department of Finance and Real Estate, Florida Atlantic University, 220 SE 2nd ave., Fort Lauderdale, FL 33431, USA)

  • Judith Swisher

    (Department of Finance and Commercial Law, Haworth College of Business, Western Michigan University, 49008 5420, USA)

Abstract

We find that profit warnings result in negative industry effects, which indicate that profit warnings convey negative industry information rather than favorable information for industry rivals about the competition. Multivariate analyses show that profit warnings carry stronger industry signals when the warning firm has a greater stock price adjustment, are larger, and have more analyst coverage. The adverse industry effects in response to profit warnings are attenuated since the inception of Regulation Fair Disclosure (RFD). However, the sensitivity of industry effects to the warning firm's stock price adjustment and size has increased since RFD. Adverse industry effects are also attenuated when market sentiment is more favorable.

Suggested Citation

  • Dave Jackson & Jeff Madura & Judith Swisher, 2007. "Do Profit Warnings Convey Information About the Industry?," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 5, pages 85-111, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812772213_0005
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