Contemporary Accounting Research Vol. 14 No. 1 1997

Earnings Announcements and Market Depth*

Robert M. Bushman^1,2; Sunil Dutta³; John Hughes^4,5; Raffi Indjejikian⁶

¹ University of North Carolina at Chapel Hill · ² University of Chicago · ³ University of California, Berkeley · ⁴ University of California, Los Angeles · ⁵ Duke University · ⁶ University of Michigan–Ann Arbor

Abstract

This paper investigates how strategic trading around the time of earnings announcements affects market liquidity (e.g., bid‐ask spreads). We model an investor with private information in advance of an earnings announcement (e.g., inside information). The investor trades before and after the earnings announcement in a market populated by liquidity‐motivated traders who have some discretion over the timing of their trades. The main result of the analysis is that an earnings announcement that reduces an insider's private information may lead to a less liquid market in the postannouncement period.

DOI

10.1111/j.1911-3846.1997.tb00519.x

Volume

14

Issue

1

Pages

43-68

Language

en

Sources

crossref openalex

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓