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Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market

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  • Zhang, Sijia
  • Gregoriou, Andros

Abstract

We investigate the empirical relationship between liquidity costs and Post Earnings Announcement Drift, using a sample of 93 zero-leverage firms listed on the FTSE 350 index over the time period 2000–2015. We discover that illiquidity levels are significantly enhanced around both the earnings and post announcement period, in both the short and long run. Once we decompose the bid-ask spread components during the earnings announcements, we observe that the adverse selection costs are significantly increased, whereas the inventory holding and order processing costs remain unchanged. We conclude that Post Earnings Announcement Drift is related with information asymmetry for zero-leverage firms.

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  • Zhang, Sijia & Gregoriou, Andros, 2020. "Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market," Journal of Business Research, Elsevier, vol. 116(C), pages 13-26.
    • Handle: RePEc:eee:jbrese:v:116:y:2020:i:c:p:13-26
    DOI: 10.1016/j.jbusres.2020.05.005
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    2. Gofran, Ruhana Zareen & Gregoriou, Andros & Haar, Lawrence, 2022. "Impact of Coronavirus on liquidity in financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Post Earnings Announcement Drift; Zero-leverage firms; Liquidity; Amihud Ratio; Spread Decomposition;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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