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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Getting Bad News Out Early: Does it Really Help Stock Prices?
Chris Downing and Steve Sharpe

Abstract: In this paper, we examine the stock price benefit of meeting or beating earnings expectations. Using a general methodology, we find no evidence that the timing of earnings news has any benefit for firms' stock returns. In fact, in many cases we find firms attempting to engineer positive earnings surprises by beating down expectations only to discover that their efforts are counterproductive. Our results appear to overturn the findings of previous authors who, using less general methodologies, have suggested that firms can boost their stock returns by getting bad news out early. Our results are robust across time periods, for different scaling factors on earnings revisions and surprises, when controlling for firm size and growth prospects, and when conditioned on past earnings news.

Keywords: Analyst forecasts, earnings management, expectations management

Full paper (2051 KB PDF)

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Last update: November 19, 2003