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The Effect of earnings surprises on information asymmetry

Author: Brown, Stephen ; Hillegeist, Stephen A. ; Lo, KinINSEAD Area: Accounting and ControlIn: Journal of Accounting and Economics, vol. 47, no. 3, June 2009 Language: EnglishDescription: p. 208-225.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: 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
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INSEAD Article Europe Campus
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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

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