Corporate Earnings News and Firm-Level Investor Sentiment

Corporate earnings announcements are usually regarded as important corporate news, which is related to investor sentiment. In the past, research on earnings news was limited to the earnings news itself, but did not study the relationship between returns and investor sentiment. The objective of the study is to study the impact of firm-level investor sentiment on the stock market, especially in the stock price reaction after the release of corporate earnings announcements. This paper mainly focuses on selected stocks in the CSI 300 index and explores the reaction of firm-level investor sentiment on stock prices based on the relationship between investor behavioral bias and accounting anomalies by using the event study methodology. The results of the study revealed that the level of investor sentiment affects their acceptance of corporate earnings surprises. Specifically, higher investors react more to positive earnings surprises, while lower investors react more to positive accounting surprises, and lower investors react more to positive accounting surprises. The results of the study revealed that: (1) the level of investor sentiment affects the degree of acceptance of firms’ earnings surprises. Investors with higher sentiment respond more to positive earnings surprises, while those with lower sentiment are less accepting of positive earnings surprises. The result suggests that investor sentiment not only affects their individual investment decisions, but also has an important impact on the market as a whole. (2) Investors with lower sentiment are more receptive to negative earnings surprises, but the impact on stock prices is not significant, which may indicate that investors with lower sentiment are more pessimistic and more inclined to see negative news about firms, but due to other factors, this sentiment does not have a significant effect on the market.