The association between predisclosure industry information and the information content of earnings announcements
Abstract
The purpose of this dissertation is to assess the association between the information content of earnings announcements of firms and industry information available prior to earnings disclosure. The industry information examined consists of periodic disclosures of information on aggregate industry demand by trade associations and government agencies. Consistent with prior research, information conveyed to the market is measured by the magnitude of abnormal security returns of firms during the announcement period. The hypothesis tested is that stock prices of firms will react less strongly to their own earnings releases and to earnings releases by other firms in their industry when more predisclosure industry information is available. The empirical results suggest that security price reactions of firms to their own earnings announcements are weaker on average for quarters in which more predisclosure industry information is available. Also, security price reactions of firms to their own earnings announcements and to the earnings announcements of other firms in their industry are weaker on average in sample industries where the predisclosure industry signal is more informative. Overall, the results are consistent with the conjecture that trade associations and government agencies in certain industries disseminate aggregate information that is useful to investors in valuing firms. In industries where these signals are available prior to earnings announcements, they preempt the information reflected in earnings releases and may partially explain why information transfer effects associated with earnings releases are small despite significant cross-correlations in earnings changes among firms in a given industry.
Degree
Ph.D.
Advisors
Ro, Purdue University.
Subject Area
Accounting|Finance
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