IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v10y2005i4d10.1007_s11142-005-4211-8.html
   My bibliography  Save this article

Market Reaction to Multiple Contemporaneous Earnings Signals: Earnings Announcements and Future Earnings Guidance

Author

Listed:
  • Rowland K. Atiase

    (The University of Texas at Austin)

  • Haidan Li

    (University of Iowa)

  • Somchai Supattarakul

    (Thammasat University)

  • Senyo Tse

    (Texas A&M University)

Abstract

We examine market reactions to contemporaneous announcements of current earnings and future earnings guidance for evidence on how investors trade off relevance and reliability. Current earnings are more reliable than future earnings guidance, but future earnings guidance may be more relevant for predicting future performance. We find that current earnings are more strongly associated with announcement-period returns than concurrently disclosed future earnings guidance, consistent with investors’ relative preference for reliability. We find similar return reactions to stand-alone earnings and to earnings released with guidance. In contrast, return reactions are lower for guidance announced simultaneously with current earnings than for stand-alone guidance.

Suggested Citation

  • Rowland K. Atiase & Haidan Li & Somchai Supattarakul & Senyo Tse, 2005. "Market Reaction to Multiple Contemporaneous Earnings Signals: Earnings Announcements and Future Earnings Guidance," Review of Accounting Studies, Springer, vol. 10(4), pages 497-525, December.
    • Handle: RePEc:spr:reaccs:v:10:y:2005:i:4:d:10.1007_s11142-005-4211-8
    DOI: 10.1007/s11142-005-4211-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-005-4211-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-005-4211-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Atiase, Rk, 1985. "Predisclosure Information, Firm Capitalization, And Security Price Behavior Around Earnings Announcements," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 23(1), pages 21-36.
    2. Patell, Jm, 1976. "Corporate Forecasts Of Earnings Per Share And Stock-Price Behavior - Empirical Tests," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 14(2), pages 246-276.
    3. Beaver, Wh & Clarke, R & Wright, Wf, 1979. "Association Between Unsystematic Security Returns And The Magnitude Of Earnings Forecast Errors," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 17(2), pages 316-340.
    4. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 6(2), pages 159-178.
    5. James Heckman, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    6. Freeman, Rn & Tse, Sy, 1992. "A Nonlinear Model Of Security Price Responses To Unexpected Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 30(2), pages 185-209.
    7. Beaver, Wh, 1968. "Information Content Of Annual Earnings Announcements," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 6, pages 67-92.
    8. Jennings, R, 1987. "Unsystematic Security Price Movements, Management Earnings Forecasts, And Revisions In Consensus Analyst Earnings Forecasts," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 25(1), pages 90-110.
    9. Amy P. Hutton & Gregory S. Miller & Douglas J. Skinner, 2003. "The Role of Supplementary Statements with Management Earnings Forecasts," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 41(5), pages 867-890, December.
    10. Waymire, G, 1984. "Additional Evidence On The Information-Content Of Management Earnings Forecasts," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 22(2), pages 703-718.
    11. Penman, Sh, 1980. "An Empirical-Investigation Of The Voluntary Disclosure Of Corporate-Earnings Forecasts," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18(1), pages 132-160.
    12. Freeman, Robert N., 1987. "The association between accounting earnings and security returns for large and small firms," Journal of Accounting and Economics, Elsevier, vol. 9(2), pages 195-228, July.
    13. Kirsten M. Ely & Vivek Mande, 1996. "The Interdependent Use of Earnings and Dividends in Financial Analysts' Earnings Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 13(2), pages 435-456, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Frankel & William J. Mayew & Yan Sun, 2010. "Do pennies matter? Investor relations consequences of small negative earnings surprises," Review of Accounting Studies, Springer, vol. 15(1), pages 220-242, March.
    2. Jong-Hag Choi & Linda A. Myers & Yoonseok Zang & David A. Ziebart, 2011. "Do management EPS forecasts allow returns to reflect future earnings? Implications for the continuation of management’s quarterly earnings guidance," Review of Accounting Studies, Springer, vol. 16(1), pages 143-182, March.
    3. Joshua Livnat & Yuan Zhang, 2012. "Information interpretation or information discovery: which role of analysts do investors value more?," Review of Accounting Studies, Springer, vol. 17(3), pages 612-641, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    2. S. P. Kothari & Charles Wasley, 2019. "Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 57(5), pages 1117-1159, December.
    3. Das, Somnath & King, Alexander Z., 2021. "Measuring the informativeness of earnings announcements: The role of event windows," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 350-367.
    4. Thorsten Knauer & Christian Ledwig & Andreas Wömpener, 2012. "Zur Wertrelevanz freiwilliger Managementprognosen in Deutschland," Schmalenbach Journal of Business Research, Springer, vol. 64(2), pages 166-204, March.
    5. Brown, Lawrence D., 1996. "Influential accounting articles, individuals, Ph.D. granting institutions and faculties: A citational analysis," Accounting, Organizations and Society, Elsevier, vol. 21(7-8), pages 723-754.
    6. Ole-Kristian Hope & Congcong Li & Mark Shuai Ma & Xijiang Su, 2023. "Is silence golden sometimes? Management guidance withdrawals during the COVID-19 pandemic," Review of Accounting Studies, Springer, vol. 28(4), pages 2319-2360, December.
    7. Matthias Meyer & Utz Schäffer & Markus Gmür, 2008. "Transfer und Austausch von Wissen in der Accounting-Forschung: Eine Zitations- und Kozitationsanalyse englischsprachiger Accounting-Journals 1990–2004," Schmalenbach Journal of Business Research, Springer, vol. 60(2), pages 153-181, March.
    8. Byung T. Ro, 1989. "Earnings news and the firm size effect," Contemporary Accounting Research, John Wiley & Sons, vol. 6(1), pages 177-195, September.
    9. Hart, Matthew, 2018. "How informative is qualitative management earnings guidance?," Advances in accounting, Elsevier, vol. 41(C), pages 59-73.
    10. Stephen Baginski & Elizabeth Demers & Chong Wang & Julia Yu, 2016. "Contemporaneous verification of language: evidence from management earnings forecasts," Review of Accounting Studies, Springer, vol. 21(1), pages 165-197, March.
    11. Jeffrey Ng & İrem Tuna & Rodrigo Verdi, 2013. "Management forecast credibility and underreaction to news," Review of Accounting Studies, Springer, vol. 18(4), pages 956-986, December.
    12. Gong, Stephen X.H. & Firth, Michael & Cullinane, Kevin, 2006. "The information content of earnings releases by global airlines," Journal of Air Transport Management, Elsevier, vol. 12(2), pages 82-91.
    13. Rogers, Jonathan L. & Van Buskirk, Andrew, 2013. "Bundled forecasts in empirical accounting research," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 43-65.
    14. Haung, Meng & Marsden, Alastair & Poskitt, Russell, 2006. "The Impact of Disclosure Reform on the NZX's Financial Information Environment," Working Paper Series 3835, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    15. Angela K. Davis & Jeremy M. Piger & Lisa M. Sedor, 2006. "Beyond the numbers: an analysis of optimistic and pessimistic language in earnings press releases," Working Papers 2006-005, Federal Reserve Bank of St. Louis.
    16. Amy P. Hutton & Gregory S. Miller & Douglas J. Skinner, 2003. "The Role of Supplementary Statements with Management Earnings Forecasts," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 41(5), pages 867-890, December.
    17. Huang, Meng & Marsden, Alastair & Poskitt, Russell, 2009. "The impact of disclosure reform on the NZX's financial information environment," Pacific-Basin Finance Journal, Elsevier, vol. 17(4), pages 460-478, September.
    18. Norio Kitagawa & Akinobu Shuto, "undated". "Credibility of management earnings forecasts and future returns," CARF F-Series CARF-F-367, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    19. Rowland K. Atiase & Linda S. Bamber & Senyo Tse, 1989. "Timeliness of financial reporting, the firm size effect, and stock price reactions to annual earnings announcements," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 526-552, March.
    20. Bozanic, Zahn & Roulstone, Darren T. & Van Buskirk, Andrew, 2018. "Management earnings forecasts and other forward-looking statements," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 1-20.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:10:y:2005:i:4:d:10.1007_s11142-005-4211-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.