How Do Individual Investors React to Earnings Announcements? Evidence from Google Insights

• In Event: AIS and Firm Value

Abstract

This study employs information search activities, based on search volume on Google, that are more specific to earnings announcements to explore how earnings surprises affect investors’ information demand or the interests in a firm around the earnings announcement day. In particular, this study addresses the following questions: First, compared to the information search activities based on generic search terms, how are the information search activities associated with earnings surprises based on search terms specific to earnings announcements? Second, how do such associations change with (1) different short or long windows around earnings announcement day, and (2) positive versus negative earnings surprises? The study shows that, over a range of search terms regarding investor relations and search domains, search behavior is associated with earnings surprise, particularly when earnings surprise is measured based on analyst forecast consensus. Search activity is more strongly associated with positive earnings surprises than with negative surprises. We also find that Google search behavior is more strongly associated with earnings surprises in search windows immediately prior to, as well as after the announcement.

Authors

• Tawei Wang, University of Hawaii-Manoa

• Roger S Debreceny, University of Hawaii-Manoa