Disclosures , Annual earnings release, Trading volume, Information content

[This study hypothesizes and finds that both the magnitude and duration of the trading volume reaction to quarterly earnings announcements are increasing functions of unexpected earnings and decreasing functions of a factor affecting the availability of predisclosure information: firm size. In contrast to unexpected earnings, which are not known until earnings are actually announced, firm size can be assessed prior to the announcement. Evidence that market reactions to quarterly earnings announcements differ systematically with a variable such as firm size, whose value is known before the announcement, may be relevant to policymakers in evaluating the potential benefits of differential accounting disclosure requirements (especially those based on firm size). Additional analysis, however, also confirms the incremental value of the actual earnings disclosures: even after controlling for the already known firm size, unexpected earnings are still positively related to the magnitude and duration of the trading volume reaction.]

This study hypothesizes and finds that both the magnitude and duration of the trading volume reaction to quarterly earnings announcements are increasing functions of unexpected earnings and decreasing functions of a factor affecting the availability of predisclosure information: firm size. In contrast to unexpected earnings, which are not known until earnings are actually announced, firm size can be assessed prior to the announcement. Evidence that market reactions to quarterly earnings announcements differ systematically with a variable such as firm size, whose value is known before the announcement, may be relevant to policymakers in evaluating the potential benefits of differential accounting disclosure requirements (especially those based on firm size). Additional analysis, however, also confirms the incremental value of the actual earnings disclosures: even after controlling for the already known firm size, unexpected earnings are still positively related to the magnitude and duration of the trading volume reaction.

This study provides empirical evidence regarding the effect of annual accounting earnings announcements on investors' trading behavior. We find that the magnitude of trading volume reaction is an increasing function of both the magnitude of the associated price reaction and the level of predisclosure information asymmetry. These results are consistent with Kim and Verrecchia's (1991a) theoretical trading volume proposition.

Voluntary disclosure, Management forecasts, Disclosure costs, Disclosure policy

Investigates the frequency with which accounting earnings announcements generate differential price and volume reactions. Assessment of the association between the differential reactions and announcement-specific characteristics; Relationship between the magnitude of price and volume reactions.

[Prior research acknowledges that an earnings announcement may generate heavy trading but minimal price changes, and vice versa. Surprisingly, there is little empirical evidence regarding the extent of such occurrences. This study investigates the frequency with which earnings announcements generate differential price and volume reactions, and then assesses whether these differential reactions are associated with announcement-specific characteristics. Although there is a positive relation between the magnitudes of price and volume reactions (on average), nearly a quarter of the announcements generate price and volume reactions of very different relative magnitudes. Additional empirical evidence is consistent with the notion that trading volume is likely to be high relative to price reaction when an earnings announcement generates differential belief revisions among investors, but a small average aggregate market belief revision.]

Drawing on a comprehensive sample of 330 bankruptcy petition filings from 1980 to 1993, we find that most of the market reaction does not occur on the bankruptcy petition filing date when the information becomes publicly available. Rather, most of the reaction occurs when news of the bankruptcy filing is more widely disseminated via the Broadtape. This “Broadtape announcement effect” persists after controlling for firm size, exchange listing, and predisclosure information. These are primarily timing differences since abnormal returns cumulated over an 11–day window centered on the filing date do not differ significantly across Broadtape disclosure date classifications.

This study provides evidence that differential interpretations are an important stimulus for speculative trading. We measure differential interpretations using data on analysts' revisions of forecasts of annual earnings after the announcement of quarterly earnings that are components of those annual earnings numbers. We find two conditions under which differential interpretations play a significant role in explaining trading. First, we present empirical evidence supporting Kandel and Pearson's (1995) argument that trading coincident with small price changes reflects investors' differential interpretations of information. This evidence is important because it is inconsistent with conventional models of trade that assume homogeneous interpretations. Second, we also find that differential interpre? tations explain a significant amount of the trading occurring in a sample where trading volume is higher than the (firm-specific) non-announcement period average. This result is consistent with informed traders acting on their differential interpretations when there is enough liquidity trading to help camouflage their own information-based trades. In sum, the study's results confirm Bachelier's (1900) intuition that differential interpretations are an important stimulus for trading.

[This paper investigates the association between aspects of investors' disagreement around earnings announcements and investors' trading decisions. Theory suggests that trading volume arises because of investor disagreement, but disagreement is a multi-faceted construct. We find that three distinctly different aspects of disagreement each play an incremental role in explaining trading volume around earnings announcements, even after controlling for the magnitude of the contemporaneous price change. These aspects of disagreement are: dispersion in prior beliefs, change in dispersion, and belief jumbling. Dispersion in prior beliefs is the level of variation in expectations before the earnings announcement, change in dispersion is the difference in the level of dispersion in beliefs after vs. before the earnings announcement, and belief jumbling occurs when investors' beliefs change positions relative to each other around the earnings announcement. Our results indicate that each of these three aspects of disagreement is associated with investors' real economic (i.e., trading) decisions around earnings announcements.]