This analysis is the first to explore the overall roles of the offsetting attraction and distraction influences of earnings news in shaping the level of attention given to the equity market by market participants.
We use multivariate regression approach and examine how trading activity levels within the set of non-announcing firms varies with respect to collective measures of contemporaneous earnings announcement visibility. We employ attention and information transfer theories in our hypothesis development.
This analysis is the first to explore the overall roles of the offsetting attraction and distraction influences of earnings news in shaping the level of attention given to the equity market by market participants. Specifically, we examine how the number of earnings announcement activity affects investor attention as measured by trading volume given to the set of non-announcing firms. We find that while earnings announcement numbers lower trading volume responses to earnings news among announcing firms (consistent with Hirshleifer et al., 2009), their distractive influence does not carry over into the market as a whole. More importantly, investor attention to both the overall market and the larger subset of non-announcing firms increase in response to earnings news activity levels. However, after decomposing the announcers as same-industry and different-industry announcers, we find that investor attention to the non-announcing segment of the market increases with the number of same-industry announcers, but actually seems to decrease (i.e. they distract attention) with the number of different-industry announcers. We also find that the associated earnings surprise brings attention to non-announcing firms (consistent with earnings news is relevant to overall market price movements). Finally, we find that distraction effects are attenuated in the financial crisis period.
A promising area of future research is to examine the relation between market pricing efficiency and aggregate earnings activity for the set of non-announcing firms. Although it will be a challenging task to measure pricing efficiency for the non-announcers, this will complement the prior literature only focusing on the announcing segment of the market.
First, instead of assessing the impact of number of earnings announcements on the subset of announcing firms, which is a micro-level perspective, we identify the impact of news arrivals on all firms in the market including the vastly larger set of non-announcing firms. Second, by decomposing the number of announcements into industry-related and -unrelated news we show that different types of news arrivals spark investor attention differently, suggesting the importance of categorizing the news into related and unrelated industries.
A potential future area of research identified by our analysis is to investigate what type of investors' attention is distracted or attracted during the earnings announcements. A promising area of future research is to examine the relation between market pricing efficiency and aggregate earnings activity for the set of non-announcing firms.
This paper is the first one exploring the overall roles of the offsetting attraction and distraction influences of earnings announcements in shaping the level of investor attention given to the equity market by market participants. Our findings should be of interest to investors, analysts, security market regulators and researchers.
We gratefully acknowledge valuable comments from Linda Bamber, Ashiq Ali, Suresh Radhakrishnan, Musa Subasi, Umit Gurun and seminar participants at the University of Texas at Dallas, University of Richmond, 2015 European Accounting Association Annual Congress, 2015 Journal of Law, Finance, and Accounting (JLFA) International Conference Hong Kong Polytechnic University, 2014 Virginia Accounting Conference, 2014 AAA Concurrent Sessions, 2014 Economics, Finance and Business Workshop at the Carnegie Mellon University and 2014 AAA SW Concurrent Sessions.Funding: The authors received no financial support for the research, authorship, and/or publication of this article.Declaration of conflicting interests: The authors declared no potential conflicts of interest with respect to the research, authorship, and/ or publication of this article.
CitationDownload as .RIS
Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited