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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
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    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

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