In a competitive information market, no single information source is likely to dominate all other sources collectively, but a single source can dominate all or most other sources individually. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar’s R2 metric: the proportion of the variation in annual returns explained by earnings announcement returns. We find that earnings announcement R2 is 11% -- higher than the corresponding R2 of returns on days with dividend announcements, management forecasts, preannouncements, 10-K and 10-Q filings and amendments. Only the four largest realized absolute daily returns in a year match the ability of earnings announcement returns to explain annual returns. We conclude that earnings announcements are the single most important source of new information in the equity market.
earnings information arrival days, conditional information content, information monopoly, incremental information
Corporate Finance | Portfolio and Security Analysis
American Accounting Association Annual Meeting, San Francisco, 31 July - 4 August 2010
European Accounting Review
City or Country
San Francisco, USA
Basu, Sudipta; Duong, Truong; Markov, Stanimir; and Tan, Eng Joo.
How important are earnings announcements as an information source?. (2013). American Accounting Association Annual Meeting, San Francisco, 31 July - 4 August 2010. 22, (2), 221-256. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/2962
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