Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Analyst and Investor Neglect of Earnings News

• In Event: Disclosure and the Market

Abstract

We test whether the fraction of 10-Q/K financial statement line items that are not disclosed at the earlier earnings announcement, which we term delayed disclosure ratio (DDR), affects how rapidly earnings news is processed by analysts and investors. We predict and find that a higher DDR is positively associated with greater analyst and investor underreaction to earnings surprises. Specifically, a higher DDR is associated with (i) less timely analyst forecast revisions after earnings announcements, (ii) greater ability of SUE to predict analyst forecast errors, (iii) weaker immediate stock price response to earnings news, and (iv) greater post-earnings announcement drift. Strikingly, higher DDR is associated with higher PEAD even when the return window starts after the additional financial information is fully disclosed. Overall, the findings suggest that the market tends to neglect earnings more when information that can help in interpreting it is not disclosed during the focal periods when analysts and investors are paying the most attention.

Authors

• Yifan Li, University of California - Irvine

• Alexander Nekrasov, University of Illinois at Chicago

• Siew Hong Teoh, University of California-Irvine