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Investor Inattention, Firm Reaction, and Friday Earnings Announcements

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Listed author(s):
  • Stefano DellaVigna
  • Joshua Pollet

Abstract

Do firms release news strategically in response to investor inattention? We consider news about earnings and analyze the response of returns to announcements on Friday and other weekdays. Friday announcements have less immediate and more delayed stock return response. The delayed response as a percentage of the total response is 60 percent on Friday and 40 percent on other weekdays. In addition, abnormal trading volume around announcement day is 10 percent lower for Friday announcements. These findings suggest that weekends distract investor attention temporarily. They support explanations of post-earning announcement drift based on underreaction to information caused by limited attention. We also document that firms release worse announcements on Friday. Friday announcements are associated with a 45 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal return. The firm-based evidence of strategic news release corroborates the investor-based evidence of inattention on Friday. The results for stock returns, volume, and strategic behavior support the hypothesis of limited attention.

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File URL: http://www.nber.org/papers/w11683.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11683.

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Date of creation: Oct 2005
Publication status: published as DellaVigna, Stefano and Joshua Pollet. “Investor Inattention and Friday Earnings Announcements.” Journal of Finance 64 (April 2009): 709-749.
Handle: RePEc:nbr:nberwo:11683
Note: AP
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Find related papers by JEL classification:

  • G1 - Financial Economics - - General Financial Markets
  • G3 - Financial Economics - - Corporate Finance and Governance
  • J0 - Labor and Demographic Economics - - General

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  17. repec:hrv:faseco:30747159 is not listed on IDEAS
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Cited by:

  1. David Dranove & Ginger Zhe Jin, 2010. "Quality Disclosure and Certification: Theory and Practice," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 935-963, December.
  2. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
  3. Zolotoy, L., 2008. "Empirical essays on the information transfer between and the informational efficiency of stock markets," Other publications TiSEM 2a2652c6-1060-4622-8721-8, Tilburg University, School of Economics and Management.

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