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Factors Associated with Differences in the Magnitude of Abnormal Returns Around NYSE Versus Nasdaq Firms' Earnings Announcements


  • Youngsoon Susan Cheon

    (Chung-Ang University,)

  • Theodore E. Christensen
  • Linda Smith Bamber


This study provides an explanation for the 'exchange effect' puzzle documented in prior accounting research. Grant (1980) finds that the magnitude of earnings announcement week abnormal returns is higher, on average, for firms traded over-the-counter than for NYSE firms. Atiase (1987) shows that this incremental 'exchange effect' persists even after controlling for firm size. We investigate potential explanations for this incremental exchange effect. We first show that even after controlling for differences in firm size, Nasdaq firms have less rich information environments and enjoy greater growth opportunities than NYSE firms. We then investigate whether differential predisclosure information environments and/or growth opportunities can explain the incremental exchange effect. The results indicate that although the absolute magnitude of the earnings announcement-related abnormal returns is inversely related to proxies for the amount of predisclosure information, the incremental exchange effect cannot be explained by differences in the predisclosure information environment. In contrast, after controlling for differences in growth opportunities across NYSE versus Nasdaq firms, and investors' heightened sensitivity to Nasdaq firms' growth opportunities in particular, there is no significant incremental exchange effect (whether or not we control for predisclosure information). These results suggest that the incremental exchange effect puzzle documented in prior research is more likely to reflect growth-related phenomena than differences in the predisclosure information environment. Copyright Blackwell Publishers Ltd 2001.

Suggested Citation

  • Youngsoon Susan Cheon & Theodore E. Christensen & Linda Smith Bamber, 2001. "Factors Associated with Differences in the Magnitude of Abnormal Returns Around NYSE Versus Nasdaq Firms' Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(9&10), pages 1073-1108.
  • Handle: RePEc:bla:jbfnac:v:28:y:2001-11:i:9&10:p:1073-1108

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    Cited by:

    1. Craig W. Holden & Pamela S. Stuerke, 2008. "The Frequency of Financial Analysts' Forecast Revisions: Theory and Evidence about Determinants of Demand for Predisclosure Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 860-888.
    2. Carlos F. Alves & F. Teixeira dos Santos, 2005. "The Informativeness of Quarterly Financial Reporting: The Portuguese Case," FEP Working Papers 177, Universidade do Porto, Faculdade de Economia do Porto.

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