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The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.

Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non‐forecasting years.

Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non‐forecasting years decreases information asymmetry during a three‐day announcement period and increases in a post‐announcement period up to seven days. No significant change in information asymmetry between pre‐ and post‐announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post‐announcement days, and experience a decrease in information asymmetry in a five to seven‐day post‐announcement period.

This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.

In a recent article Aharony and Swary considered the synchronous nature of earnings and dividends announcements in examination of the information content of dividend hypothesis. They concluded that their results support the information content of dividends hypothesis—that announcements of changes in dividends provide information beyond that contained in quarterly earnings announcements. A shortcoming of the Aharony and Swary study is that it considers only dividend and earnings announcements that occur at least 11 trading days from each other. In fact, as their Table I indicates the majority of such pairs of announcements occur within ten days of each other. Further, approximately one‐half of their observations of earnings and dividends announcements are separated by at least 21 trading days (close to one calendar month). These considerations lead one to wonder how synchronous their announcements are and whether their results can be generalized to earnings and dividend announcements that actually occur in close proximity to each other.

This study aims to find the response by stock market against the announcements of quarterly earnings is empirically tested by exploiting event study methodology. Efficient market hypothesis (EMH) on Saudi stock exchange is also tried on.

The market model is applied to help gauge the expected returns and to illustrate abnormal returns around the event date.

The results established that Saudi Stock Market does not bear semi-strong form of EMH. How efficient is the Saudi market is also reflected through evidence of significant abnormal returns and post-earnings announcement drift around earning announcements dates.

The authors have not used analysts’ forecast as the expected earnings which are the limitation. As mentioned earlier, the authors used the quarterly earnings of the previous year as a proxy and that proxy could have been replaced by analysts’ forecast. Another limitation is that the trading volume in the event window is not considered.

The behavior of Saudi capital market is of much concern, and the study of this with a perspective of EMH is the significance of this paper.

All stakeholders closely watch earnings announcements and its share price movement around the announcement date. Recently, Saudi Arabia has opened its doors to foreign investors, and big foreign investors are going to enter into Saudi capital market, and after their entry, the behavior of market could be different. In the authors’ opinion, this is the right time to study the efficiency of Saudi market before the entry of foreign investors.

This study is based on the gap created by EMH of Saudi market using event methodology, observed in the existing literature, and it will be a contribution to literature.

The purpose of this paper is to examine the effect of managerial ability on the tone of earnings announcements and on the market response to the tone.

This study constructs a model of the determinants of earnings announcement tone in order to examine whether managerial ability plays a significant role in determining earnings announcement tone. Further, to test whether the market response to the tone of earnings announcements is affected by managerial ability, this study also examines the interactive term between earnings announcement tone and managerial ability. The tone of earnings announcements is measured using the spread in the proportion of positive and negative words. Managerial ability is measured using the managerial ability rank developed by Demerjian et al. (2012).

More able management teams use a more positive tone in their earnings announcements. Stock markets have more pronounced positive reactions to positive tones in the earnings announcements issued by companies with more able management teams.

This study identifies managerial ability as a previously unrecognized determinant of tone in earnings announcements and of the stock price reaction to earnings announcements.

The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.

The authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.

The authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.

This paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.

The purpose of this study is to investigate whether the earnings surprise influences decision to make earnings announcements during or after the trading hours is influenced by the earnings surprise resulting from the difference between consensus earnings estimates and the actual reported earnings.

Event study methodology was employed to test the hypotheses relating to earnings surprise and timing of earnings announcements. Twelve quarterly earnings announcements of 30 companies, drawn from BSE SENSEX of India, were studied to test the hypothesized relationships.

The study has found statistically significant differences in the market responses to the earnings announcements made during and after the trading hours. The market demonstrated a negative response to the earnings announcements made after the trading hours. Further, the results of the logistic regression have shown that the presence of significant earnings surprises is likely to induce firms to make earnings announcements after the trading hours. The results indicate that those firms that intend to reduce the overreaction and underreaction to earnings surprises are likely to make earnings announcements after the trading hours.

This paper highlights the market response to the earnings announcement made during and after the regular trading hour. Further, the paper examines if the earnings surprise influences the decision to announce the results.

The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year.

The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns.

The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise.

The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise.

The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

The purpose of this paper is to investigate the empirical association between the tone of earnings announcements and a company’s membership in a sin industry.

This study constructs a model of the determinants of earnings announcement tone to examine the impact of sin industry membership on earnings announcement tone. An interaction term between CEO power (CEO–chairman duality) and sin industry membership is used to test whether CEO power moderates the strength of the association. The earnings announcements tone is measured using the spread in the proportion of positive and negative words. The category of sin industry includes not only industries such as tobacco, gambling and alcohol, but also industries associated with emerging environmental, social, and ethical issues (i.e. firearms, oil and cement).

The analysis of a sample of US firms from the 1994 to 2013 period shows that the tone of earnings announcement is less optimistic for companies in sin industries, but this association is weaker for companies that are led by powerful CEOs. The results remain robust to alternative definitions of sin industry membership and CEO power (CEO tenure) and to alternative model specifications.

The findings suggest that although sin companies cannot change the nature of their business, the management of such companies, in general, uses a less aggressive tone in their earnings announcements. These results further investors’ understanding of sin companies’ reporting behavior.

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.

This paper aims to investigate the informational content of earnings surprises and accounting information in credit default swap (CDS) markets.

This paper analyzes a sample of 444 US firms and 6,907 earnings announcements. By means of parametric and non-parametric event study analysis, the paper assesses the informational value and the timeliness in the assimilation of earnings surprises by CDS rates.

This paper shows that earnings surprises contain material information and that CDS rates are affected by the disclosure of obligors’ financial statements. There is also supporting evidence that positive and negative surprises induce asymmetric reactions on CDS rates, especially after accounting for the credit risk of the obligor and the liquidity of the CDS contract. Finally, and perhaps the most interesting conclusion of the study, there is evidence that earnings disclosed during unstable periods lack informational value, in opposition to normal periods.

As compared with similar studies, this paper presents three novel contributions. The first concerns the use of non-parametric analysis in parallel with parametric tests to achieve robust conclusions. The second novel contribution resides in assessing whether the liquidity of the CDS contracts affects the information value of earnings surprises or the timeliness at which the information is assimilated into CDS rates. Finally, this paper also contributes to improve our understanding on the relationship between the business cycle and the informativeness of accounting information.