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Discussion of “Differential Market Reactions to Revenue and Expense Surprises”

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  • Philip G. Berger

    (University of Chicago)

Abstract

Ertimur et al. (2003, this issue) study the difference in the market;s reaction to revenue versus expense surprises. The discussion first reviews their main findings and assesses the paper's potential contributions. Alternative explanations are then considered for the base-line result that the market reacts more to revenue surprises than to expense surprises. The hypothesized reasons for revenue surprises to matter more are critiqued, as are the tests of the hypotheses, and potential extensions that would link these test to financial statement analysis are suggested. Finally, two aspects of the assessment of how the reaction to revenue and expense surprises differs across value and growth firms are discussed: The definitions of value and growth firms and the potential benefits of assessing why analyst revenue forecasts are (not) observed for many value (growth) firms.

Suggested Citation

  • Philip G. Berger, 2003. "Discussion of “Differential Market Reactions to Revenue and Expense Surprises”," Review of Accounting Studies, Springer, vol. 8(2), pages 213-220, June.
    • Handle: RePEc:spr:reaccs:v:8:y:2003:i:2:d:10.1023_a:1024461328106
    DOI: 10.1023/A:1024461328106
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    References listed on IDEAS

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    1. Wilson, Gp, 1986. "The Relative Information-Content Of Accruals And Cash Flows - Combined Evidence At The Earnings Announcement And Annual-Report Release Date," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24, pages 165-200.
    2. Yonca Ertimur & Joshua Livnat & Minna Martikainen, 2003. "Differential Market Reactions to Revenue and Expense Surprises," Review of Accounting Studies, Springer, vol. 8(2), pages 185-211, June.
    3. Swaminathan, S & Weintrop, J, 1991. "The Information-Content Of Earnings, Revenues, And Expenses," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 29(2), pages 418-427.
    4. DeFond, Mark L. & Hung, Mingyi, 2003. "An empirical analysis of analysts' cash flow forecasts," Journal of Accounting and Economics, Elsevier, vol. 35(1), pages 73-100, April.
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