The effect of earnings surprises on information asymmetry

Stephen Brown, Stephen Hillegeist, Kin Lo

Research output: Contribution to journalArticle

39 Citations (Scopus)

Abstract

We examine the effect of earnings surprises on changes in information asymmetry. We hypothesize and find that asymmetry is lower (higher) in the quarter following positive (negative) earnings surprises compared to firms that meet the consensus analyst earnings forecast. The relations between earnings surprises and information asymmetry are stronger when the surprises are more likely to capture investors' attention. Examining the source of these changes, we show that decreased information search activities is the most important factor for asymmetry declining after positive surprises; for negative surprises, decreased uninformed trading plays a dominant role increasing asymmetry. Crown

Original languageEnglish (US)
Pages (from-to)208-225
Number of pages18
JournalJournal of Accounting and Economics
Volume47
Issue number3
DOIs
StatePublished - Jun 2009
Externally publishedYes

Fingerprint

Information asymmetry
Earnings surprises
Surprise
Asymmetry
Factors
Investors
Information search
Analysts' earnings forecasts

Keywords

  • Earnings surprises
  • Information asymmetry
  • Investor recognition hypothesis

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

The effect of earnings surprises on information asymmetry. / Brown, Stephen; Hillegeist, Stephen; Lo, Kin.

In: Journal of Accounting and Economics, Vol. 47, No. 3, 06.2009, p. 208-225.

Research output: Contribution to journalArticle

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