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Is All Disaggregation Good For Investors Evidence From Earnings Announcements
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Book Synopsis Is All Disaggregation Good for Investors? Evidence From Earnings Announcements by : Eric Holzman
Download or read book Is All Disaggregation Good for Investors? Evidence From Earnings Announcements written by Eric Holzman and published by . This book was released on 2019 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior work suggests that greater earnings disaggregation in financial statements leads to favorable market outcomes. This perspective is based on a fundamental presumption that the disaggregation separates earnings components with heterogeneous characteristics. We hypothesize that the disaggregation of homogeneous earnings components is associated with greater investor opinion divergence and a less efficient market response to the earnings announcement. We estimate persistence regressions at the industry level and classify earnings components with significant differential persistence relative to sales as heterogeneous and components with insignificant differential persistence relative to sales as homogeneous. Consistent with our hypothesis, we find a significant positive relation between the level of homogeneous earnings disaggregation and investor disagreement around earnings announcements. We also find significantly greater post-earnings announcement drift after earnings announcements with greater homogeneous earnings disaggregation. This evidence is consistent with homogeneous earnings disaggregation hindering investors' ability to efficiently impound earnings information into price.
Book Synopsis How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements by : Shana Clor-Proell
Download or read book How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements written by Shana Clor-Proell and published by . This book was released on 2018 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers.
Book Synopsis Is Forecast Disaggregation Always Beneficial? by : Lei Dong
Download or read book Is Forecast Disaggregation Always Beneficial? written by Lei Dong and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how the level of disaggregation in earnings forecasts influences investors' reactions to earnings surprises. Previous research finds that investors respond more favorably to a disaggregated forecast than to an aggregated one immediately after the forecast. However, given that earnings forecasts are necessarily followed by earnings announcements, this initial characterization portrays an incomplete picture of forecast disaggregation without its effect on investor reaction following actual earnings outcome. Using an experiment, we present evidence that investors react negatively to forecast inaccuracy irrespective of the valence of the earnings news. Further, in line with expectation violation theory, the negative reactions are amplified for a disaggregated forecast when compared with an aggregated forecast. Consequently, we find that the initial favorable perceptions following a disaggregated forecast are diluted in a positive earnings surprise condition and disappear in a negative earnings surprise condition. Our mediation test suggests that the downward adjustments in investment interest are fully mediated by the impairment of perceived management credibility. Our findings suggest that disaggregated disclosures are not always beneficial, and add to the growing literature concerning the costs and benefits of accounting information disaggregation.
Book Synopsis Mandatory Earnings Disaggregation and the Value Relevance, Persistence and Pricing of Earnings Components by : Elmar Retief Venter
Download or read book Mandatory Earnings Disaggregation and the Value Relevance, Persistence and Pricing of Earnings Components written by Elmar Retief Venter and published by . This book was released on 2011 with total page 664 pages. Available in PDF, EPUB and Kindle. Book excerpt: Thus far, the disaggregation of non-recurring items from earnings has been investigated mostly in the United States, in the context of special items and pro forma earnings. The disclosure of these items is mainly on a voluntary basis. Managers of firms have significant discretion in the calculation of such items (McVay, 2006). In this regard, the literature suggests that non-recurring items have lower persistence than recurring items, and that recurring earnings has higher value relevance than earnings determined in accordance with Generally Accepted Accounting Practice (GAAP) (Bradshaw and Sloan, 2002; Brown and Sivakumar, 2003). However, surprisingly, non-recurring items (both special items and exclusions from pro forma earnings) are significantly mispriced in the United States (Dechow and Ge, 2006; Doyle, Lundholm and Soliman, 2003). This evidence suggests that, despite the apparently transitory nature of non-recurring items, investors are unable to estimate their implications for future earnings accurately. In this study, this anomaly is investigated by focusing on a different regulatory setting. In South Africa, firms listed on the Johannesburg Securities Exchange (JSE) are required to disclose headline earnings in addition to earnings determined in accordance with the International Financial Reporting Standards (IFRSs). Headline earnings effectively excludes some non-recurring items. In addition, firms are required to present a reconciliation between headline earnings and IFRS earnings in the financial statements. The South African setting differs from the United States in two important respects. Firstly, all firms are required to present headline earnings in South Africa, whereas pro forma earnings reporting is voluntary in the United States. Secondly, the allowable exclusions from headline earnings are formally defined and subject to external audit, while firms in the United States are allowed to define their own exclusions from pro forma earnings. This study investigates the value relevance, persistence and pricing of the earnings components that result from the headline earnings definition in South Africa. The results indicate that headline earnings exclusions contain information that is incrementally value relevant to IFRS earnings. This evidence suggests that investors find the disaggregation of headline earnings from basic earnings useful. In a sub-sample of firms with positive earnings, headline earnings appears to have higher value relevance than IFRS earnings. The persistence tests indicate that, as expected, headline earnings exclusions (the nonrecurring part of earnings) display lower persistence than headline earnings (the recurring part of earnings). The study shows -- consistent with Sloan's (1996) findings -- that accruals are less persistent than cash flows. This can be attributed largely to headline earnings exclusions. The pricing tests indicate that investors significantly underweight the cash flow component of earnings. Notably, neither headline earnings exclusions nor any of the other earnings components reflect significant mispricing. When additional explanatory variables are included in the analyses, the mispricing of the cash flow component disappears.
Book Synopsis Unintended Consequences of Forecast Disaggregation by : Lei Dong
Download or read book Unintended Consequences of Forecast Disaggregation written by Lei Dong and published by . This book was released on 2016 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research finds that investors respond more favorably to a disaggregated earnings forecast than to an aggregated one immediately after the forecast. The present study examines the impact of this initial favorable effect on investors' decisions following earnings surprise announcements. Based on Expectation Violation Theory, we posit that the benefit of a disaggregated earnings forecast can backfire when management subsequently reports an earnings surprise. The results of our experiment indicate that investors' negative reactions are stronger if they first observed a disaggregated forecast than if they first saw an aggregated forecast. We find that investors make the greatest downward adjustments in investment interest when the disaggregated forecast is later found to be disappointing. This study provides evidence of the complexity of the effect of disaggregated earnings forecast and adds to the literature concerning the costs and benefits of accounting information disaggregation.
Book Synopsis STOCK PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A by : VICTOR L. BERNARD
Download or read book STOCK PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A written by VICTOR L. BERNARD and published by . This book was released on 1992 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Convergence and Divergence of Investors' Opinions Around Earnings News by : Robert Charles Giannini
Download or read book The Convergence and Divergence of Investors' Opinions Around Earnings News written by Robert Charles Giannini and published by . This book was released on 2018 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We collect a unique dataset of Twitter posts to examine the change in investor disagreement around earnings announcements. We find that investors' opinions can either converge (reduced disagreement) or diverge (increased disagreement) around earnings announcements. The convergence and divergence of opinion has significant effects on trading volume and return. Consistent with theoretical predictions, both the convergence of opinion and the divergence of opinion are associated with greater volume reaction to earnings news. While the convergence of opinion is associated with lower earnings announcement returns, the divergence of opinion is associated with higher earnings announcement returns.
Book Synopsis The More We Know About Fundamentals, the Less We Agree on Price by : Lindsey A. Gallo
Download or read book The More We Know About Fundamentals, the Less We Agree on Price written by Lindsey A. Gallo and published by . This book was released on 2017 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Can an earnings announcement decrease disagreement about fundamentals while simultaneously increasing disagreement about price? Recent theory suggests the presence of short-horizon investors can lead to a polarization of higher-order beliefs about price (i.e., beliefs regarding the opinions of other investors), even as a public announcement reduces disagreement about fundamentals. Using analyst forecast dispersion and implied volatility to proxy for differences of opinion about fundamentals and price, respectively, I find a positive association between the presence of speculative traders and both the likelihood and extent of divergence between changes in price disagreement and earnings disagreement around earnings announcements characterized by decreasing forecast dispersion. Further, using abnormal announcement period volume to measure disagreement about price, I continue to document a positive association between speculation and the extent of divergence. Taken together, these results suggest that higher-order beliefs play an important role in assessing the informativeness of earnings announcements.
Book Synopsis Causes and Consequences of Disaggregating Earnings Guidance by : Benjamin Lansford
Download or read book Causes and Consequences of Disaggregating Earnings Guidance written by Benjamin Lansford and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Whether managers should provide earnings guidance, especially quarterly guidance, has been a hotly debated policy issue. Influential organizations have urged firms to stop providing earnings guidance to reduce earnings fixation and short-termism in the capital markets. Little attention has been paid to an alternative proposal: instead of ceasing earnings guidance, companies could provide disaggregated earnings guidance. No archival evidence exists regarding the determinants of disaggregated earnings guidance and its effects on the firm and its information environment. We find that once managers provide guidance, the decision to disaggregate this guidance is primarily driven by demand-and-supply factors that exhibit little change from year to year rather than by opportunistic factors. We find more timely analyst forecast revisions (with no compromise of forecast accuracy), a greater magnitude of revisions, and a larger reduction in analyst disagreement for disaggregating firms than for non-disaggregating firms. These findings suggest that disaggregation enriches a firm's information environment. We also find that disaggregation helps managers align analyst expectations with their own, but firms are punished by investors for providing multiple performance targets but missing them.
Book Synopsis Individual Investor Trading and Return Patterns Around Earnings Announcements by :
Download or read book Individual Investor Trading and Return Patterns Around Earnings Announcements written by and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents evidence consistent with informed trading by individual investors around earnings announcements using a unique dataset of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose the abnormal returns into a component that is attributed to risk-averse liquidity provision and a component that is attributed to private information or skill, and show that about half of the abnormal returns in the three months following the event can be attributed to private information. We also examine the behavior of individuals after the earnings announcement and find that they trade in the opposite direction to both pre-event returns (i.e., exhibit "contrarian" behavior) and the earnings surprise (i.e., exhibit "news-contrarian" behavior). The latter behavior, which could be consistent with profit-taking, has the potential to slow down the adjustment of prices to earnings news and contribute to the post-earnings announcement drift.
Book Synopsis Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades by : David A. Hirshleifer
Download or read book Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades written by David A. Hirshleifer and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study tests whether naiquest;ve trading by individual investors, or some class of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates.
Book Synopsis The End of Accounting and the Path Forward for Investors and Managers by : Baruch Lev
Download or read book The End of Accounting and the Path Forward for Investors and Managers written by Baruch Lev and published by John Wiley & Sons. This book was released on 2016-06-14 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: An innovative new valuation framework with truly useful economic indicators The End of Accounting and the Path Forward for Investors and Managers shows how the ubiquitous financial reports have become useless in capital market decisions and lays out an actionable alternative. Based on a comprehensive, large-sample empirical analysis, this book reports financial documents' continuous deterioration in relevance to investors' decisions. An enlightening discussion details the reasons why accounting is losing relevance in today's market, backed by numerous examples with real-world impact. Beyond simply identifying the problem, this report offers a solution—the Value Creation Report—and demonstrates its utility in key industries. New indicators focus on strategy and execution to identify and evaluate a company's true value-creating resources for a more up-to-date approach to critical investment decision-making. While entire industries have come to rely on financial reports for vital information, these documents are flawed and insufficient when it comes to the way investors and lenders work in the current economic climate. This book demonstrates an alternative, giving you a new framework for more informed decision making. Discover a new, comprehensive system of economic indicators Focus on strategic, value-creating resources in company valuation Learn how traditional financial documents are quickly losing their utility Find a path forward with actionable, up-to-date information Major corporate decisions, such as restructuring and M&A, are predicated on financial indicators of profitability and asset/liabilities values. These documents move mountains, so what happens if they're based on faulty indicators that fail to show the true value of the company? The End of Accounting and the Path Forward for Investors and Managers shows you the reality and offers a new blueprint for more accurate valuation.
Book Synopsis Advances in Accounting Behavioral Research by : Khondkar E. Karim
Download or read book Advances in Accounting Behavioral Research written by Khondkar E. Karim and published by Emerald Group Publishing. This book was released on 2016-11-04 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Accounting Behavioral Research addresses a wide range of issues that affect the users, preparers and assurers of accounting information. Volume 19 exemplifies this focus by including research from auditing, taxation and managerial and information systems.
Book Synopsis Why are Earnings Announcements So Important to Traders and Investors? by : John Shon
Download or read book Why are Earnings Announcements So Important to Traders and Investors? written by John Shon and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis (Presentation Slides) Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence From Personal Trades by : David A. Hirshleifer
Download or read book (Presentation Slides) Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence From Personal Trades written by David A. Hirshleifer and published by . This book was released on 2018 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study tests whether naïve trading by individual investors, or some class of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates. The paper is available here: "https://ssrn.com/abstract=1120495" https://ssrn.com/abstract=1120495.
Book Synopsis The RISE and RISE of NON-GAAP DISCLOSURE by : Jeff Coulton
Download or read book The RISE and RISE of NON-GAAP DISCLOSURE written by Jeff Coulton and published by . This book was released on 2016-11-24 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Reporting Disaggregated Information by : Paul Pacter
Download or read book Reporting Disaggregated Information written by Paul Pacter and published by Financial Accounting Standards Boar Foundation. This book was released on 1993 with total page 452 pages. Available in PDF, EPUB and Kindle. Book excerpt:
