Abstract
Finance literature highlights various reasons for stock performance subsequent to earnings announcements. However, other moving parts in these scenarios must also be simultaneously specified. While both revenue and earnings surprises are important for determining stock performance, forward-looking guidance and firm valuation prior to earnings should also be considered. Additionally, analyses that solely consider market-level data miss important subtleties evident in a sector-specific study, as “normal” growth and valuation metrics across sectors widely differ. We differentiate between firms that announce earnings during the evening hours (after the close) and firms that announce earnings during the morning hours (prior to the open).
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Notes
Unlike revenue, EPS values (estimates and actuals) can be negative, which does not allow for a calculation of percent change. To account for this, scaled earning surprise is calculated as the ratio of EPS Surprise $ / Prior Closing Price. This ratio, as opposed to EPS Surprise $, is utilized in order to introduce a standardized metric that accounts for market value.
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Acknowledgements
This work is supported by the Sam Houston State University COBA Summer Research Grant Program. We would like to thank the participants at the 2019 Academy of Economics and Finance annual conference (St. Pete Beach, FL) for their helpful comments and insight. We would also like to thank Darien Kearney and Amy Beth Thomas for excellent research assistance.
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Alvarado, J.I., Clark, L.C. & Gutierrez, J.A. Stock performance subsequent to combinations in quarterly revenue surprise, earnings surprise, guidance, valuation, and report time. J Econ Finan 45, 95–117 (2021). https://doi.org/10.1007/s12197-020-09531-7
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DOI: https://doi.org/10.1007/s12197-020-09531-7