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Getting bad news out early: does it really help stock prices?


  • Chris Downing
  • Steven A. Sharpe


In this paper, we examine the stock price benefit of meeting or beating earnings expectations. Using a general methodology, we find no evidence that the timing of earnings news has any benefit for firms' stock returns. In fact, in many cases we find firms attempting to engineer positive earnings surprises by beating down expectations only to discover that their efforts are counterproductive. Our results appear to overturn the findings of previous authors who, using less general methodologies, have suggested that firms can boost their stock returns by getting bad news out early. Our results are robust across time periods, for different scaling factors on earnings revisions and surprises, when controlling for firm size and growth prospects, and when conditioned on past earnings news.

Suggested Citation

  • Chris Downing & Steven A. Sharpe, 2003. "Getting bad news out early: does it really help stock prices?," Finance and Economics Discussion Series 2003-58, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2003-58

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    References listed on IDEAS

    1. Skinner, Dj, 1994. "Why Firms Voluntarily Disclose Bad-News," Journal of Accounting Research, Wiley Blackwell, vol. 32(1), pages 38-60.
    2. Hardle, Wolfgang & Linton, Oliver, 1986. "Applied nonparametric methods," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.),Handbook of Econometrics, edition 1, volume 4, chapter 38, pages 2295-2339, Elsevier.
    3. Bartov, Eli & Givoly, Dan & Hayn, Carla, 2002. "The rewards to meeting or beating earnings expectations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 173-204, June.
    4. Cleveland, William S. & Devlin, Susan J. & Grosse, Eric, 1988. "Regression by local fitting : Methods, properties, and computational algorithms," Journal of Econometrics, Elsevier, vol. 37(1), pages 87-114, January.
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    Cited by:

    1. Vahid Biglari & Ervina Binti Alfan & Rubi Binti Ahmad & Najmeh Hajian, 2013. "The Ability of Analysts' Recommendations to Predict Optimistic and Pessimistic Forecasts," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-10, October.
    2. Vahid Biglari Author_Email: & Gurcharan Singh Pritam Singh, 2011. "The Effect Of Market Incentives On Analyst Forecast Management And Analyst Forecast Error," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-215, Conference Master Resources.

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    Stock - Prices;

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