Increased Information Content of Earnings Announcements in the 21st Century: An Empirical Investigation

This study examines the factors contributing to a striking increase in information content of quarterly earnings announcements, measured as the absolute magnitude of stock price revision at earnings announcements relative to price revision at other times from 1999 to 2012. We provide evidence that one-day announcement windows exhibit roughly twice the price response observed for three-day windows. Furthermore, we find that management guidance, analyst forecasts, and disaggregated financial statement line items are more frequently bundled with earnings announcements over our sample period, and these variables help to explain the increase in the information content of earnings announcements over time. However, after controlling for these concurrent disclosures, a striking increase in information content of earnings announcements remains. In addition, we compare the price response to earnings announcements without management guidance or analyst forecasts to the response to management guidance or analyst forecasts issued outside earnings announcements. We find that the relative return volatility on stand-alone earnings announcement dates is on average comparable to that on management guidance dates. However, management guidance exhibits a declining pattern of information content, whereas the information content of earnings is increasing and surpasses that of guidance in years 2007 to 2012. Abnormal return variability at stand-alone earnings announcements is more than twice that at analyst forecast dates. Our findings indicate that after controlling for the effects of concurrent disclosures by analysts and management guidance, earnings announcements are increasingly more informative to investors in the 21st century.