The Information Content of Earnings Announcements:

New Insights from Intertemporal and Cross-Sectional Behavior

William H. Beaver
Joan E. Horngren Professor (Emeritus)
Graduate School of Business, Stanford University, Stanford, CA, 94305, USA
Email: fbeaver@stanford.edu

Maureen F. McNichols
Marriner S. Eccles Professor
Graduate School of Business, Stanford University, Stanford, CA, 94305, USA
Email: fmcnich@stanford.edu

Zach Z. Wang
Assistant Professor
University of Illinois at Urbana-Champaign, Champaign, IL, 61821, USA
Email: zgwang@illinois.edu

March 14, 2015

_______________
We thank Paul Reist and Nora Richardson for their assistance in data collection. We assume responsibility for any
remaining errors.
 The Information Content of Earnings Announcements:
New Insights on Intertemporal and Cross-Sectional Behavior

Abstract

This study examines the information content of quarterly earnings announcements. We first use a
nonparametric approach to investigate whether quarterly earnings announcements are
informative between 1971 and 2011 and find unequivocal evidence that earnings announcements
convey significantly more information relative to non-announcement periods. We also find that
the information content increases over time with a dramatic increase from 2001 onward, a period
that includes the implementation of Sarbanes Oxley reforms and the worst economic downturn
since the Great Depression. We then investigate cross-sectional variation in information content.
We find that the information content of earnings announcements is positively associated with
profitability, firm size and analyst coverage.

Keywords: capital markets; earnings announcements; information content; return volatility

 The Information Content of Earnings Announcements:
New Insights on Intertemporal and Cross-Sectional Behavior 1

I. INTRODUCTION

This paper examines three questions about the information content of earnings

announcements. First, how robust are the earlier findings that revisions to security prices are

significant when earnings are released? Second, has the magnitude of the price response to

earnings announcements increased over time? Third, does the magnitude of the price response to

earnings announcements vary for firms with potentially different information environments?

Specifically, does the magnitude of the price response vary with the profitability of the firm, its

size, or the extent of its analyst coverage?

Beginning with Ball and Brown (1968) and Beaver (1968), a large literature has

examined the information content of earnings. While the early findings in this literature

document that earnings announcements have significant information content, more recent

literature has explored whether and how the information content of earnings varies over time and

across firms. Although the question of whether earnings announcements have information

content might be viewed by some as having long been settled, a number of papers question this,

including Bamber et al. (2000), Ball and Shivakumar (2008), and Ball (2013). Furthermore,

there are many reasons to hypothesize changes to the information content of earnings, including

changes in financial reporting standards and regulation over time, changes in firms’ business

models that are potentially less well captured by the current accounting model, and changes to

the institutions and incentives for private production and dissemination of information. The latter

1
We refer to the information content of earnings announcements rather than earnings as we study the reaction of
prices on earnings announcement days, which will reflect the reaction to all information released on those days. This
potentially includes information about the balance sheet and statement of cash flows, as well as management
guidance or other disclosures.

1
includes dramatic changes in information technology that have led to significant reduction in

costs of providing and disseminating information, and an increase in the availability of

information throughout the year on a continuous basis. These factors potentially would serve to

reduce the incremental information content of earnings announcements. The passing of time

allows us to revisit this literature with a longer and potentially more varied sample period, to

examine the robustness of the earlier findings and to assess whether and how the information

content of earnings announcements has changed.

Three measures of the information content of earnings announcements are predominantly

employed in the literature, the earnings response coefficient (ERC), for which Ball and Brown

(1968) is a precursor, a measure of abnormal volume, and a measure of abnormal return

volatility based on the U-statistic introduced by Beaver (1968). This study examines the

information content of earnings announcements based on the abnormal return volatility measure,

and therefore focuses on the information conveyed to investors at earnings announcements. We

develop a U-statistic motivated by Beaver (1968), Patell (1976), and Landsman and Maydew

(2002), which we refer to as TCU, for three-day cumulative U-statistic.

First, we examine whether the information released at earnings announcement days is

greater than the information released at other times during our sample period. Using a

distribution-free test, we find unequivocal evidence that earnings announcements convey more

information to the markets than the information conveyed in non-earnings announcement

periods. Specifically, we find that the mean U-statistic observed at earnings announcement

periods is substantially above the 99th percentile of the distribution of U-statistics drawn from

non-earnings announcement periods for each of the 41 years in our 1971 to 2011 sample period.

Our statistic measuring relative price revision activity in earnings announcement periods from

2
1971 to 2011 is 2.54, compared to a mean of 1.18 in non-earnings announcement periods and

1.67 for the sample in Beaver (1968).

To incorporate the skewed nature of the U-statistic and make inferences about the breadth

of the effect across reporting firms, we focus on the median as well as the mean. Similar to the

mean tests, the median tests indicate that the median firm exhibits substantially greater return

variability at earnings dates than in non-report periods. These findings indicate the mean results

are not driven by a small subsample of firms with extreme reactions.

Second, using a sample that extends ten years beyond the time period of prior research,

we examine whether the relative variability of returns at earnings announcements has continued

to increase over time. We find the variability of returns at earnings announcements has

continued to rise, and that the rate of the increase is substantially greater than in earlier years. In

particular, we document a dramatic increase from 2001 onward, a period that includes the

implementation of SOX reforms and the worst recession since the Great Depression. Moreover,

the relative price revisions at earnings announcements have increased substantially over the past

decade, with the mean TCU reaching a peak of 4.28 in 2006 and 4.15 in our final sample year

2011. Thus the rate of growth is substantially greater than documented in earlier studies.

Furthermore, we document that the increase in information content is not monotonic over time,

with increases and decreases in the 2000’s, a pattern that warrants future research.

We next examine several cross-sectional determinants of relative return variability at

earnings announcements. First, we examine the association between the information content of

earnings announcements and profitability. Prior research by Basu (1997) finds that the

conservatism inherent in accounting causes more timely recognition of losses than gains, which

could result in greater revision of prices at earnings announcements by loss firms. Alternatively,

3
the transitory nature of losses, as documented by Hayn (1995), could result in less revision of

prices. Further, the discretionary component of losses may be larger (e.g. due to taking big baths)

or may be preempted by disclosure occurring prior to the narrow 3-day earnings announcement

window (Kasznik and Lev, 1995). We find that the variability of returns at earnings

announcement dates of firms reporting profits is greater than that for firms reporting losses,

suggesting that the effect of greater persistence of profits offsets the potentially greater

timeliness of losses.

Second, we examine the association between information content and size, or market

capitalization. Early studies on this relation, such as Atiase (1985), documented that smaller

firms had more pronounced price reactions to earnings. However, there have been many changes

in the financial reporting environment since the time periods examined in his and other early

studies and ex ante it is not clear how these changes might affect the relative informativeness of

earnings announcements. We find that the average market reaction to earnings was negatively

related to size through the late 1980’s, consistent with Atiase (1985). However, this relation

reversed in the 1990’s and 2000’s, with more pronounced reactions to earnings for each quartile

of market capitalization.

Third, we find a positive association between relative return variability at earnings

announcements and analyst following. Currently, there is considerable ambiguity on the relation

between analyst coverage and information content of earnings announcements, due in part to

competing predictions of various theories and models. We conjecture that there are several

potential forces associated with analyst following. On one hand, greater analyst following could

increase the total market reaction to earnings announcements to the extent that analysts serve as

information intermediaries, and are an important part of the process through which information is

4
incorporated into price. Also, analysts may have incentives to cover firms where earnings are

more informative because, for example, it gives them the opportunity to discuss and interpret

price reaction to earnings. In addition, managers may have incentives to produce more

informative earnings disclosures where there is greater analyst following. If one or more of these

forces is in effect, we would expect a positive association between information content and

analyst coverage. On the other hand, competition among analysts could motivate analysts to seek

more timely information that would at least partially preempt the earnings announcement.

Selection by analysts might favor their covering stocks with weaker information environments,

in the manner hypothesized by Barth, Kasznik and McNichols (2001), or providing more

informative reports as documented by Chen, DeFond and Park (2002), and DeFond and Hung

(2003). This second force could lead to a negative association between information content and

analyst coverage. Our evidence suggests that the first set of forces dominates the second set.

Furthermore, our evidence based on multivariate tests indicates that the association between

relative return variability and size is often insignificant or changes sign when analyst coverage is

included in the regression, whereas analyst coverage remains highly significantly positive.

In addition to our findings on the information content of earnings announcements, our

paper contributes to the methodology of testing for information content. First, we develop a

distribution-free test of the hypothesis that the observed U-statistic at earnings announcements is

greater than the U-statistic estimated for randomly chosen intervals in the non-report period. This

approach allows us to test whether the mean or median, or any other characteristic of the U-

statistic, is significantly higher in announcement windows than in randomly chosen non-

announcement windows without making assumptions about the underlying return distributions.

Second, we develop a U-statistic (denoted as the TCU-statistic) that allows for serial correlation

5
of returns between adjacent trading days in both announcement and non-announcement windows

and non-normality of returns. Third, we present extensive descriptive and visual evidence that

permits a richer picture of how information content of earnings has varied over time and across

firms.

The remainder of the paper proceeds as follows. Section II discusses the prior literature

and our hypotheses. Section III discusses the research design. Section IV presents sample

properties. Section V discusses the results, and Section VI provides concluding remarks.

II. PRIOR LITERATURE AND HYPOTHESIS DEVELOPMENT

By showing both trading volume and return volatility increasing at the time of annual

earnings announcements, Beaver (1968) provides evidence that earnings reports provide

information to investors, as measured by the U-statistic and abnormal volume. 2 Beaver (1968)

defines the U-statistic to be the announcement week squared residual returns divided by the

mean squared residual returns in the non-announcement period. Patell (1976) derived the

distribution of the U-statistic under the assumption that security returns are normally distributed

and serially independent. With these assumptions, he showed the U-statistic has an F-distribution

with an expected value of slightly greater than 1 under the null hypothesis that earnings

announcements do not convey more information than in non-announcement periods.

Furthermore, the F distribution is in general skewed to the right so the median U-statistic is less

than one under the null.

2
The U-statistic and the abnormal volume measures are based upon the notion that a necessary condition for a signal
to have information content is that beliefs are altered and that the change in beliefs must be sufficient to alter actions
across signals.

6
 In moving from weekly returns to daily returns, it has been common practice to measure

the mean U-statistic over a three-day interval surrounding the earnings announcement, due to

uncertainty over the exact timing of the earnings release (e.g., Landsman and Maydew, 2002).

We refer to the Landsman and Maydew calculation of the U-statistic as LMU. As we describe in

greater detail later, we develop a measure that compounds returns over the three-day interval

surrounding the earnings announcement to calculate a U-statistic (hereafter, TCU). Because the

distribution of TCU is not expected to be symmetric, we examine the median of the distribution

as well as the mean. By focusing on the median as well as the mean, we can examine the extent

to which relative return variability differs during earnings report periods across the cross-section

of firms. While the mean is expected to be one under the null hypothesis, the median is expected

to be less than one.

Our hypotheses concern whether earnings announcements have information content, and

whether the information content varies with time, profitability, size, and analyst coverage. The

numerator of the U-statistic captures the information released during earnings announcement

windows. The denominator of the U-statistic captures the information released during non-report

windows. Any factor that increases the information released during earnings announcement

windows or decreases the information released during non-report windows will increase the

information content of earnings announcements. Hence, to examine the explanatory factors of

the U-statistic, we explore factors that might affect how much information is released within and

outside earnings announcement windows. Our first hypothesis is a replication of the tests

conducted in prior studies for a more comprehensive sample. Specifically, our sample includes a

longer time period, 1971-2011, and allows us to examine the past decade, which includes the

Great Recession. We interpret the information content of earnings announcements to mean the

7
ability to change the market’s belief in a systematic manner such that equilibrium price revisions

are greater at the time of earnings announcements than at other times in the year (i.e., the non-

report period). The non-report period is not a “no information” benchmark because there is other

information occurring during the non-report period. It contains a mixture of days with

information and days with no new information. While some may view the information content of

earnings announcements as having long been established, a number of recent papers question

this, including Bamber et al. (2000), Ball and Shivakumar (2008), and Ball (2013). For instance,

Bamber et al. (2000) conclude that Beaver’s original findings are not generalizable to larger

firms and are driven by a small set of sample firm-years. For Hypothesis 1, we include all firms

with earnings reports dates from Compustat. Our hypothesis is stated in null form and our

alternative is two-sided:

Hypothesis 1: Earnings announcements do not convey more information to investors than is

conveyed on randomly chosen days in non-announcement periods.

A number of studies examine whether the information content of earnings

announcements has increased or decreased over the 1970’s through 1990’s and explore potential

explanations for this trend. Recent contributions to the literature include those of Lo and Lys

(2001); Landsman and Maydew (2002); Francis, Schipper and Vincent (2002a); and Collins, Li

and Xie (2009). Using a sample of firms from 1972 to 2000, Lo and Lys (2001) find that the

information content of earnings announcements does not increase over time but the value

relevance of earnings decreases over time. They attribute the difference in the findings for

information content and value relevance to unrecognized disclosure at the same time as earnings.

Using a sample of firms from 1972 to 1998, Landsman and Maydew (2002) instead find that the

information content of earnings announcements increases over time after controlling for factors

8
such as firm size, intangible intensity and presence of a loss. Francis et al. (2002a) limit their

sample to firms that are present in Compustat throughout the entire period from 1980 to 1999

and find that an increasing trend in market reactions exists in spite of declining absolute

unexpected earnings and ERC’s. Using earnings press releases, they find that over-time increases

in the amount of concurrent disclosures and over-time increases in investor reactions to

concurrent disclosures explain the increase in market reactions. Using a sample of firms drawn

from IBES from 1985 to 2000, Collins et al. (2009) find an increasing trend in the

informativeness of earnings announcements, which they attribute to an increasing reaction to

“Street” earnings.

Because the sample periods in these studies ended by 2000, they do not provide evidence

on capital market response to earnings in more recent years. The post-2000 period is a

fascinating period in our economic history that includes the Internet boom and bust, Reg FD,

SOX reforms, and several quarters of significant economic crisis as well as several quarters of

recovery on the information content of earnings. The significant uncertainty created during the

Internet bust and the financial crisis could potentially put a premium on more timely information.

For example, industry or macroeconomic news could be a dominating factor during these time

periods and could be preemptive in nature. If the preemptive nature of other information has

increased, the information content of earnings announcements may have declined. On the other

hand, during unfavorable economic times there may be a premium on relatively higher quality

signals such as the earnings announcement, which are subject to audit, and audit scrutiny likely

increased during this time. In addition, the information disclosed at earnings announcements

may have increased.

9
 While the question of the time trend of the information content of earnings

announcements is an intuitively appealing initial question, it can be potentially limiting in at least

two respects. First, the variable “time” is the ultimate sponge because it is a proxy for some

underlying factor that is varying through time. A complete understanding of the factors that drive

information content would drive the time variable to insignificance. Second, it tends to relegate

the other variables into a secondary status as “control” variables. For example, as discussed,

Landsman and Maydew (2002) describe an expanded model with additional variables but do not

report the results beyond indicating that the time variable is still significant. Collins et al. (2009)

include an essentially different set of control variables based on prior research on volume

determinants. Francis et al. (2002a) contain neither set of the control variables used in these two

studies to focus instead on other information disclosed in earnings press releases. By contrast,

our study explicitly considers hypotheses related to the additional variables of size, analyst

following and profitability, which have cross-sectional as well as time-series variation. This

approach elevates explaining the cross-sectional variation to equal status in terms of

understanding the determinants of the information content of earnings announcements. In this

sense, it complements earlier approaches addressing why the information content of earnings

might change in different periods.

The preceding discussion suggests two questions of interest. First, is the information

content of earnings announcements associated with time? This leads to H2a, stated in null form:

Hypothesis 2a: The information content of earnings announcements is not associated with time.

Our alternative hypothesis is two-sided.

Second, has the association with time changed in the post-2000 period? We select 2000

as a cut-off year because the sample period of the above-mentioned studies concludes in 2000,

10
and because of the significant events in the post-2000 period. This cutoff year also results in a

similar number of firm-year observations in each subsample. This leads to H2b, stated in null

form:

Hypothesis 2b: The rate of change in the information content of earnings announcements post-

2000 is equal to the rate of change in the information content in the pre-2000 period.

Our alternative hypothesis is two-sided.

Hayn (1995), Basu (1997) and Givoly and Hayn (2000) suggest that accounting

standards, such as the change in the impairment standards introduced by SFAS 144, requires

more timely recognition of losses over time. If investors treat losses as timely information about

poor operational conditions, we should observe significant market reactions to losses. However,

these studies also document that losses are less persistent than gains. For example, losses might

reflect managers’ decision to take a “big bath” (Healy 1985). If investors do not extrapolate

losses in firm valuation, the lower degree of persistence could lower the information content of

earnings announcements. For example, Collins et al. (1999), Barth, et al. (1998) and Francis et

al. (2002a) find that the earnings coefficients in regressions of market value or stock returns on

earnings are significantly lower for loss firm-years than for profit firm-years.

The profitability of a firm may also affect firms’ voluntary disclosure decisions, as Miller

(2002) documents. Firms experiencing increasing profitability are more likely to disclose more

information voluntarily. The effect on the information content at earnings announcements

depends on whether increased voluntary disclosure occurs with the earnings announcement or

prior to it. The competing effects of timeliness and persistence of losses and the effect of

profitability on voluntary disclosure motivate our third null hypothesis, for which our alternative

is two-tailed.

11
Hypothesis 3: The information content of earnings announcements does not differ between firms

reporting profits and firms reporting losses.

Prior literature hypothesizes a relation between the information content of earnings and

firm size through the effects of variables correlated with size on firms’ information

environments. Atiase (1985) hypothesizes that alternative sources of pre-disclosure information

increase as a function of firm size. If most of the information contained in earnings

announcements is preempted by other information sources, we should observe smaller market

reactions to earnings of large firms. Using a sample of firms with market capitalization either

greater than $400 million or smaller than $20 million from 1971 to 1972, he finds that the

information content of earnings announcements is negatively associated with size. Shores (1990)

examines the cross-sectional determinants of the information content of earnings announcements

of OTC firms from 1983 to 1984. For this specific group of firms, she finds a negative

association between the information content of earnings announcements and proxies for the

information environment such as market capitalization and analyst coverage.

An alternative factor is that earnings for large firms may be more informative due to their

business models, to higher quality audits or greater litigation risk. Large firms are also more

likely to provide investors with more concurrent disclosure through conference calls, such as

management guidance. Furthermore, the post-earnings announcement literature (Bernard and

Thomas, 1989) finds that investors react in a more timely manner to earnings announcements of

large firms than small firms. Because we view the relative magnitude of these opposing forces as

unknown, the test of our fourth hypothesis is two-tailed. Our fourth null hypothesis is:

Hypothesis 4: The information content of earnings announcements is not associated with size.

12
 Analyst following has the potential to influence the information content of earnings

announcements in competing ways. To the extent that analysts serve as information

intermediaries and are part of the process through which information is incorporated into price

prior to the release of earnings, an increase in analyst following could increase the total market

reaction to earnings announcements. For example, analysts may ask relevant questions in

conference calls and make timely forecast and recommendation revisions in earnings

announcement windows. The association between information content and analyst coverage may

also be due to the factors that analysts consider in their coverage decisions. Analysts may have

incentives to cover firms that have more informative earnings announcements, for example,

because it provides them an opportunity to discuss and interpret price reactions to earnings.

These forces would lead to a positive association between information content and analyst

following. Using a sample of firms from 1986 to 1995, Francis et al. (2002b) find that the

information content of earnings announcements is positively associated with the information

content of analyst reports and conclude that the informativeness of earnings announcements is

not eroded by competing information in the form of analyst reports.

On the other hand, competition among analysts could motivate analysts to seek and

release more timely information that would at least partially preempt the earnings announcement.

For example, Chen et al. (2002) and DeFond and Hung (2003) find that analysts respond to

market incentives and release more information about firms when earnings information is less

informative. Relatedly, Barth et al. (2001) find analysts choose to cover firms for which the

financial reporting model works less well so there is greater uncertainty about valuation. These

forces could lead to a negative association between information content and analyst following.

Given the strength of the arguments for increasing and decreasing relations, our tests are two-

13
tailed, and our alternative hypothesis is that the information content of earnings announcements

differs for firms with levels of analyst coverage. Our null hypothesis is:

Hypothesis 5: The information content of earnings announcements is not associated with analyst

following.

III. EMPIRICAL METHODOLOGY

Measures of the Information Content of Earnings Announcements

Our measure of the information content of earnings announcements, the Three-day

Cumulative U-Statistic (“TCU”) captures the magnitude of the average squared residual return

during the announcement period, hereafter the testing period TP, to averaged squared residual

returns during the non-announcement period, hereafter the estimation period EP. 3

For each quarterly earnings announcement (day 0), we require that return data are

available for each of the three trading days in the test period TP (days -1, 0, +1). We choose

three-day announcement windows following prior research. 4 An estimation period, EP, is

defined as the period from 130 to 10 days prior to the earnings announcements and days 10 to

130 days after the announcement. In a procedure to be explained shortly, we also make the same

requirements for each “as if” non-report earnings announcement randomly selected from the

non-report period. Following the Landsman and Maydew (2002) convention, we aggregate

quarterly earnings announcements into calendar years based on the dates of earnings release. We

3
The difference between our measure TCU and the Landsman and Maydew measure LMU is that LMU implicitly
assumes that daily returns are not correlated in both the estimation period and the testing period, whereas TCU does
not make such assumptions. Our untabulated analysis indicates that the first order serial correlation of daily returns
is significantly negative in both the estimation and testing periods.
4
We focus on three-day rather than one-day returns for two reasons. First, prior studies use a three-day period and
we wish to compare our results with theirs. Second, an examination of one-day returns would require the earnings
announcements to be time-stamp in order to identify announcements that were made after the close of trading. The
time stamp data is not available in computer-readable form until 1999.

14
then calculate the means and medians of TCU for each calendar year. Refer to Appendix 1 for

further details of TCU.

Development of the Nonparametric Distribution

As discussed earlier, the distribution of TCU is not expected to be symmetric. If the

underlying return variables are independently, normally distributed, the numerator and

denominator are each expected to be distributed as a chi-square distribution, and the ratio would

be distributed as an F distribution, which is skewed to the right. Hence, the median is expected to

be below 1. Of course, daily returns (or residual returns) may be neither normally nor

independently distributed. If so, testing the significance of these differences would require the

derivation of the underlying sampling distribution in a distribution-free manner that does not

assume normality or serial independence of returns.

To generate a sampling distribution under the null hypothesis, for each quarterly earnings

announcement, we randomly select a day during its non-report or estimation period. That day is

treated as if it were an announcement day. We then calculate TCU in the same manner as the

actual earnings announcement, and obtain the mean and median of TCU for that sample of

randomly-chosen announcement dates. Repeating the procedure 1,000 times produces a sampling

distribution, which is then compared with the values obtained for the actual earnings

announcements. 5 The procedure is described in greater detail in Appendix 2.

The nonparametric procedure differs significantly from that of Beaver (1968), where each

mean U-statistic reported for the non-report period is chronologically aligned (and thus subject to

cross-sectional dependence) and is based on a smaller number of observations. The sampling of

5
Drawing the randomly chosen announcement date from the estimation period for each earnings announcements
ensures that the randomly chosen date is from approximately the same calendar period as the actual earnings
announcement date. Given that our sample is drawn over 41 calendar years, this procedure seems preferable to
allowing the randomly chosen announcement date to occur at any time in the firm’s history.

15
the non-report periods used here repairs both of these potential deficiencies. The random-

sampling procedure mitigates potential cross-sectional dependence of observations aligned

chronologically (even after taking out the market-wide factor), and we obtain a sampling

distribution of the mean U-statistic for the non-report periods based on 1,000 trials. With the

advent of technology that permits data-intensive techniques, we are able to conduct the 7*108

(700,000 earnings time 1,000 iterations) simulations that underlie the non-report distribution.

Definitions of Other Variables

We examine the association of TCU with several variables, including time, loss, size and

analyst following. T is a trend variable that takes values from 0 to 27 for calendar years from

1984 to 2011. POST2000 is an indicator variable that is equal to 1 for firm-quarters in calendar

years from 2001 to 2011 and 0 otherwise. TPOST2000 is T times the POST2000 indicator, to

capture the relation between TCU and time in the post-2000 period. LOSS is an indicator

variable that is equal to one when PTEBS is negative and zero otherwise, where PTEBS is the

sum of Net Income before Extraordinary Items, Tax Expenses and Minority Interest before

Special Items. CV is the market capitalization value of the firm’s common stock at fiscal quarter

end from Compustat. Following Atiase (1985), we take the natural log of CV, LCV, as a proxy

for size. The variable for analyst following, NUMESTQ, or the number of analysts making

forecast of the upcoming quarterly earnings at fiscal quarter end, is drawn from the IBES

analysts forecast database. For firm-quarters that are not in the IBES database, we assume zero

analyst coverage. NUMn is an indicator variable that equals one if n analysts cover a specific

firm quarter and zero otherwise, and measures analyst following. We control for participation in

financial services, reporting lags, fiscal-year end, and unexpected earnings, variables we expect

to be associated with the information content of earnings releases. FIN (NONFIN) is an indicator

16
variable that is equal to 1(0) when the four-digit SIC code is between 6000 and 6999 and 0 (1)

otherwise. LAG is the number of days after the end of the fiscal quarter that earnings are

announced. NONDEC31 is an indicator variable that is equal to 1 for firm-quarters with Non-

Dec31 fiscal year end and 0 otherwise. Following Collins et al. (2009), ABSFE_STREET is the

absolute value of the difference between IBES realized earnings per share and IBES median

consensus earnings per share at fiscal quarter end scaled by price per share at fiscal quarter end.

Initially, the hypotheses are treated in an unconditional, bivariate manner (i.e., one

variable at a time). In the subsequent section, we also conduct multivariate regression analysis to

determine if the results of these hypotheses tests are preserved conditional on all of the variables

included in the regression.

IV. SAMPLE PROPERTIES

We start with the universe of firms listed on the NYSE, AMEX and NASDAQ markets

for which quarterly reporting dates are available from Compustat and return data are available

from CRSP. For each quarterly earnings announcement included, we require that return data are

available for each of the three trading days in the event period (days -1,0,+1) ,TP, and the

number of trading days with nonzero return data in estimation period EP is at least 40. We also

make the same requirements for each simulated non-report earnings announcement. For our first

hypothesis, our analysis covers the quarterly 41-year period from 1971 through 2011 and the

final sample size is 700,000 firm-quarters.

For the additional hypotheses, we impose additional restrictions on the sample to ensure

each firm-quarter observation has data for the required variables. Because Compustat does not

provide sufficient data to calculate the profitability variable, PTEBS, before 1976, our analysis

17
on LOSS starts from 1976, and the sample size is 554,796. Because most firms do not have IBES

coverage before 1984, our analysis of analyst following begins in 1984, leaving us with a sample

size of 586,455. 6 For our analysis on unsigned “Street” earnings, IBES coverage is required and

therefore also begins in 1984. This analysis has a sample size of 335,092. For our multivariate

regression models, we require included firm-quarters to have all required variables except for

unexpected earnings. We winsorize all variables at the 1st and 99th percentiles. The number of

observations included in each analysis is reported in the respective tables and figures.

V. RESULTS

Are Earnings Announcements Informative and Has Information Content Changed over

Time?

Figure 1 serves two purposes. It compares the mean (Panel A) and median (Panel B) of

TCU over each of the years from 1971 through 2011. In each quarter, the figure also compares

these values with the respective sampling distribution constructed from the non-announcment

period. For each calendar year, we plot the value of TCU_mean (TCU_median) for our event

sample against the values of 1000 TCU_means (TCU_medians) from the null distribution. 7 The

mean and median values are above the 99th percentile in each of the 41 calendar years. The

evidence provides striking evidence that earnings announcements convey significantly more

information than in non-announcement periods.

Given the prior research that has also rejected the null hypothesis, the finding with

respect to the mean U-statistic is not completely surprising. However, prior research has also

6
Our convention of equating no coverage by IBES with no analysts’ coverage would contain substantial error if we
included years prior to 1984, given the much less comprehensive sample available for earlier years. For firms that
are not covered by IBES, we assume zero analyst coverage.
7
The pattern of the mean and medians of LMU is similar, and in the interests of brevity are untabulated.

18
raised the issue of whether the skewed nature of the underlying distribution affects the robustness

of results based on means, which may be dominated by a few extreme observations. The median

results provide new evidence that the finding is robust with respect to the use of medians, which

are less influenced by extreme observations. In fact, the median value is not only above the 99th

percentile in each of the years, it is higher than every one of the 1,000 non-announcement values

in every year from 1971 to 2011. 8

Table 1 Panels A and B report the mean and median values of TCU by year for each

event period, along with the distribution of the respective values for the non-announcement

period. For instance, in 2011, the mean value of TCU in Panel A is 4.15 and the 99th percentile

of the non-report distribution is 1.50. Similarly, the median value of TCU for 2011 in Panel B is

0.98 and the 99th percentile is 0.30. Although the values of the event period statistics in 2011 are

among the highest across the sample period, the results are similar for the other years where the

earnings announcement period values lie consistently above the 99th percentile of the non-report

distribution. Over the 41 years, the mean value of TCU in event windows is 2.54, which is 2.2

times 1.18, the mean value of TCU in simulated non-report windows. To test our Hypothesis 1

more formally, we also conduct a rank test, and the details are reported in Table 2. Using

Bonferroni’s Correction Method, we reject the null of no information content at the 1%

significance level for every year.

As expected, the distribution of TCU is not symmetric. The mean TCU in the non-report

period is 1.18 over the years and above one in every year, which is greater than would be

8
The retesting of the null hypothesis is also nontrivial in the sense that another 11 years has been added to the
analysis, reflecting turbulent economic times and several regulatory changes. It is possible, although unlikely, that
the information content may have declined sufficiently to be unable to reject the null. The retesting also shows that
the TCU transformation of the U-statistic produces essentially the same results as prior research using common
years.

19
expected under the assumptions of independence and normality. A comparison of the means of

the TCU median distribution in Panel B to those of the TCU mean distribution in Panel A shows

the skewed nature of the underlying distribution: in each year the mean of the TCU median

distribution is considerably lower than that of the TCU mean distribution in Panel A. These

findings confirm the value of developing a nonparametric test, and indicate that the inferences

based on the mean TCU are not due to a subset of extreme observations.

With respect to the time trend in TCU, an increase is evident and is in fact highest in the

last 10 years. While prior research has imposed a linear time trend on the U-statistic, it is clear

from Figure 1 that the time trend is decidedly nonlinear. In fact, the slope dramatically increases

in the last ten years. By comparison, the time trend of the prior time period upon which prior

research is based appears to be small by comparison. In the multivariate analysis, we will test

directly whether the increasing time trend effect is stronger after 2000 than before 2000.

Overall, the null hypothesis of no information content is rejected for each and all of the

time periods. Moreover, there appears to be a positive time trend that is more pronounced in the

later years, which includes the most significant economic recession since the 1930s.

Firm-Quarter Specific Variables

In this section, we examine the ability of profitability, size, number of analysts and

unexpected earnings to explain the differences in TCU. We present a series of figures that

illustrate the differences over time. This form of presentation permits us to examine cross

sectional differences, holding time constant, and time-series differences holding the cross

sectional variable constant. The subsequent section reports the findings of multivariate analysis

that combines all of the variables examined.

Profits versus Loss

20
 Figure 2 presents a description of the mean and median values of TCU for both profitable

and loss firms. We assign firm-quarters with positive PTEBS to the profitable group and firm-

quarters with negative PTEBS to the loss group. The figures indicate that firm-quarters with

losses are associated with lower information content than firm-quarters with profits. The mean

and median values for the profitable group are higher than those for the loss group in each of the

41 years. Our results suggest that the low persistence of losses dominates the timely information

role of losses. Furthermore, the difference in the market reaction to earnings announcements of

profit vs. loss firms is more pronounced in the later years.

Figure 3 presents a figure with the percentage of loss firm-quarters over time. The

frequency of loss increases from 10% in 1976 to 40% in 2000, which is consistent with the

findings in Hayn (1995) and Givoly and Hayn (2000). After 2000, the frequency of loss

decreases gradually to 25% in 2006 and then increases to about 40% in the Great Recession.

Consistent with Beaver et al. (2012), these results suggest that the frequency of losses is the joint

effect of accounting standards and underlying economic conditions.

Size

Figure 4 presents a description of the mean and median values of TCU in each LCV, or

log of capitalized value, percentile. We rank firm-quarters by the log of market capitalization in

the pooled sample and assign LCV percentiles accordingly. We assign firm-quarters with the

lowest LCV to percentile 1 and firm-quarters with the highest LCV to percentile 100. The mean

values are essentially flat until the 50th percentile, but there is a positive association between

TCU and LCV percentiles from the 50th percentile to the 100th percentile in the mean graph.

The mean TCU for the 50th LCV percentile is 1.92, and the mean TCU for the 100th LCV

percentile is 2.90. The median graph shows that there is a monotonic positive association

21
between TCU and LCV percentiles. Overall, we see a positive association between size and the

information content of earnings announcements. We defer an explicit test for significance of

size until the discussion of the multivariate analysis.

Figure 5 documents the relation between size and information content over time. It

presents a time-series plot of the mean and median values of TCU in each of the LCV quartiles

by calendar year. For each calendar year, we assign firm-quarters with the lowest LCV to

quartile 1 and firm-quarters with the highest LCV to quartile 4. Before 1988, the U-statistic for

the smallest quartile observations is higher than for the largest, which is consistent with the

preemption effect documented in Atiase (1985). From 1988 through 1994, the largest and

smallest size quartiles have approximately the same U-statistic. However, from 1995 to 2011, the

TCU is larger for the largest firms relative to the smallest. This is consistent with the view that

LCV is a proxy for other characteristics of the information environment such as higher analyst

coverage, and these characteristics dominate the preemption effect documented in Atiase (1985).

In addition, the increase in information content after 2000 is more pronounced for firms in the

top two LCV quartiles than for firms in the bottom two LCV quartiles.

One characteristic of size as a variable is its sponge-like ability to soak up the effect of

other correlated variables. In that spirit, we examine analyst coverage, which is more directly

related to information environment.

Analyst Coverage

Figure 6 presents a description of the mean and median values of TCU in each of the

analyst coverage categories. The mean graph shows that there is a positive unconditional

association between TCU and analyst coverage. The mean TCU for the zero analyst following

category is 1.92 and the mean TCU for firm-quarters with more than 26 analysts is 3.61. The

22
median graph shows a similar pattern. Compared to size, analyst coverage can be argued to be a

more refined measure of the information environment.

Figure 7 presents the mean TCU for the quartiles of the distribution of analyst coverage

and for firms with no coverage. Consistent with Atiase’s preemption hypothesis, mean TCU is

highest for firms with less coverage in the earliest years. Consistent with our findings for size,

this relation reverses to a positive association between TCU and analyst coverage. For this later

period, our results suggest that the information intermediary role of analysts, the analysts’

tendency to cover more earnings-sensitive firms, and/or managers' incentives to provide more

information when analyst coverage is greater dominates the preemption effect of greater analyst

coverage. We cannot distinguish between these explanations but consider the positive association

between analyst following and information content of earnings announcements an intriguing

phenomenon for future research.

Multivariate Regression Results

While Figures 1 through 7 are helpful in analyzing the bivariate relation between the

individual explanatory variables and TCU, ultimately we are also interested in the role these

variables play conditional on the remaining explanatory variables. The purpose of the

multivariate analysis is to assess the incremental association of the variables jointly estimated.

As a prelude, Table 3 reports the descriptive statistics, and Pearson and Spearman correlations

for the variables in the regressions.

With respect to the descriptive statistics in Panel A, the mean TCU of 2.34 is well above

1.0 and above the mean based on the randomly selected event windows. Note that these means

are slightly different than those reported earlier, because they are based on a shorter time period

(1984 to 2011). The median TCU of 0.59 is also well above the median based on the randomly

23
selected event windows. The percentage of loss firm-quarters is 28 percent. Notably, 44% of the

firm-quarter observations are from 2001 to 2011, which suggests that the number of observations

before 2000 is comparable to the number of observations after 2000 in our sample.

With respect to the correlations in Panel B, TCU is positively associated with T (Pearson

0.097, Spearman 0.093), POST2000 (Pearson 0.099, Spearman 0.090), TPOST2000 (Pearson

0.107, Spearman 0.103), LCV (Pearson 0.078, Spearman 0.119), NUMESTQ (Pearson 0.108,

Spearman 0.138), NONDEC31 (Pearson 0.014, Spearman 0.010) but negatively associated with

LOSS (Pearson -0.072, Spearman -0.081), FIN (Pearson -0.039, Spearman -0.043) and LAG

(Pearson -0.035, Spearman -0.058). ABSFE_STREET is not highly correlated with TCU

(Pearson -0.007, Spearman -0.001). These results are in general consistent with what we observe

in the figures. LCV is positively associated with NUMESTQ (Pearson 0.640, Spearman 0.663).

The high correlation between LCV and NUMESTQ is consistent with size in part proxying for

the number of analysts.

Tables 4 through 6 report the main results from the multivariate regressions. In Table 4,

analyst following is a discrete variable NUMESTQ; in Table 5, we include a series of indicator

variables to allow for nonlinearity between analyst following and TCU. In Table 6, unsigned

unexpected earnings are included in the regressions.

With respect to Table 4, the relationships observed in the bivariate analyses reported

earlier are largely preserved with the exception of the size effect when both LCV and

NUMESTQ are included. With respect to the control variables, for each of models 1-7, the

coefficients on FIN and LAG are significantly negative and the coefficient on NONDEC31 is

significantly positive, as expected. For the specification in Model 1, we see a positive association

between T and TCU, which is consistent with the general trends in the figures (coefficient 0.069,

24
t-stat 10.97). Thus we reject the null hypothesis H2a in favor of the alternative that the

information content of earnings is significantly increasing with time.

To examine how the information content of earnings is related to time before and after

2000, we begin by including a POST2000 indicator. The coefficient on POST2000 is 0.593,

incremental to the intercept for the full sample period of 1.989. The coefficient on T declines

from 0.069 in model 1 to 0.036 in model 2. This indicates a higher overall level of information

content after 2000, but a weaker overall relation between TCU and T when the intercept is

allowed to vary.

Model 3 allows the intercept and coefficient on T to differ between the post-2000 and

earlier period. The findings indicate that the increase in information content over time

documented in model 1 is driven by observations after 2000. Specifically, when we include the

interaction between T and POST2000 in Model 3, we find that it is significantly positive

(coefficient 0.116, t-stat 10.97), but the coefficient on T is no longer significant (coefficient

0.006, t-stat 0.58). Thus, we reject the null hypothesis H2b in favor of the alternative that the rate

of change in the information content of earnings announcements post-2000 is greater than the

rate of change in information content in the pre-2000 period.

When LOSS is included in Model 4, we see a significant negative association between

TCU and LOSS (coefficient -0.837, t-stat -18.94). Consistent with the bivariate relationship

presented in Figure 2, the information content of earnings announcements for loss firms is

significantly lower than for profitable firms. Therefore, we reject H3 that information content

does not differ for firms reporting profits vs. losses.

The next specifications examine the explanatory power of LCV and NUMESTQ. When

LCV and NUMESTQ are included in Models 4 and 5 separately, we see a positive association

25
between TCU and each of these variables (LCV: coefficient 0.055, t-stat 4.56; NUMESTQ:

coefficient 0.070, t-stat 13.68). However, when both LCV and NUMESTQ are included in

Model 6, TCU is positively associated with NUMESTQ (coefficient 0.084, t-stat 17.23) but the

association between TCU and LCV turns negative (coefficient -0.055, t-stat -5.12). This suggests

that the positive association between size and information content in the figures is mainly driven

by the positive association between analyst coverage and information content.

The models in Table 5 allow for nonlinearity in the relation between analyst following

and TCU and permit a direct interpretation of the coefficients. Conditional upon the other

variables, the coefficient on NUMnQ picks up the incremental effect of NUMESTQ=n to the

average effect of the omitted case NUMESTQ=0 on TCU. Looking at Model 1, the positive

coefficients on analyst following monotonically increase up to NUM1625Q (Model 1, coefficient

1.025, t-stat 10.90) before showing a slight decline in the top category NUM26upQ (Model 1,

coefficient 0.829, t-stat 4.43). This form of representing the effects of the number of analysts

permits a direct interpretation of the incremental effects of analyst coverage. For example, in the

range of 15 to 25 analysts, the U-statistic is 1.025 higher than for firms with no analyst coverage.

When T and POST2000 are suppressed in Model 3, the coefficients on NUMnQ increase, which

suggests that the time trend is in part reflecting changes in the number of analysts. LCV is

negative but insignificant when time variables are suppressed.

Table 6 reports the results with and without unsigned unexpected earnings included in the

regressions. Model 1 is the same as Model 7 in Table 4. In Model 2, we require all observations

to have IBES coverage, and the sample size shrinks from 496,870 to 277,613. Compared to

Model 1, most of the results in Model 2 remain intact except that the coefficient on LCV

becomes insignificant (coefficient -0.024, t-stat -1.51). When we include unsigned unexpected

26
earnings ABSFE_STREET in Model 3, we see a significant positive association between TCU

and ABSFE_STREET (coefficient 5.103, t-stat 8.52) although the adjusted R2 increases from

2.98% to only 3.04%. This is consistent with our measure of earnings surprise explaining only a

small portion of the return volatility in earnings announcement windows.

Lastly, as a robustness check, we rank LCV and NUMESTQ within calendar years, and

include their ranks in the multivariate analysis. The results are reported in Table 7, and they are

consistent with the estimation results in Table 4.

VI. CONCLUSIONS

Our goal is to explore the time-series and cross-sectional variation of the information

content of earnings announcements based on the abnormal return volatility measure (TCU). The

results provide additional insights relative to prior research. Using a nonparametric approach

with randomly chosen dates as simulated announcement dates, we find unequivocal evidence

that earnings announcements convey more information than is conveyed in non-announcement

periods. This finding is evident for the mean and median TCU measures, indicating that the

findings based on means are not due to a small subset of observations.

We find that information content is increasing over time, and is at its highest in the 2001

to 2011 period. For this time period, we find that information content has increased at an even

greater pace than documented in prior research. That updated time period includes the decline of

Internet stocks and the aftermath of September 11, 2001. It also includes the introduction of Reg

FD and SOX reforms, and the Great Recession, periods that are each of interest in and of

themselves.

27
 We also find strong evidence that the information content of earnings announcements is

significantly lower for firms reporting losses than firms reporting profits. This finding suggests

that the greater persistence of profits vs. losses and potentially greater voluntary disclosure at

earnings dates by profitable firms dominate the effect of greater timeliness of losses.

Unconditionally, we find a positive association between information content and firm

size, as measured by market capitalization. This contrasts with prior research that found a

significant negative association between firm size and information content of earnings. We

document that this relation has changed over time, and test whether the correlation between firm

size and analyst following plays a role in this result. We find that the association between

analyst coverage and information content is positive. However, when we test whether firm size

and analyst following both play a role in the information content of earnings, we find that analyst

following continues to be positively associated with information content of earnings but the

association with firm size becomes insignificant or negative. Taken as a whole the findings

suggest that the association between information content and firm size is capturing the

correlation between firm size and analyst coverage, and once this is incorporated directly, firm

size does not have an incremental effect on information content.

Finally, we document a number of interesting associations between TCU and control

variables in our models. Specifically, we find that the earnings announcements of financial firms

are associated with less price revision activity, consistent with the argument that earnings

information plays a lesser role in valuation for financial firms than macroeconomic and interest

rate news. We document that firms with greater reporting lags from the end of the quarter are

associated with less price revision activity, consistent with greater preemption of less timely

news. We find that the announcements of non-December 31 firms are associated with greater

28
price revision activity, consistent with the reasoning in prior research that non-December 31

firms are likely smaller firms subject to less attention and preemption of earnings news by other

firms. We also find that the announcements with greater unsigned “Street” earnings surprise are

associated with greater price revision activity.

The findings in our study raise several intriguing questions for future research. The

striking increase in information content at earnings announcements over the past decade warrants

explanation. Is it due to changes in preemption of earnings announcements by competing

information sources to investors, the information disclosed at earnings announcements or the

speed of price response to earnings announcements? To what extent is the increase in

information content due to changes in the information in the earnings press release itself versus

other information bundled with earnings announcements, such as the information in conference

calls? Have the accounting standards changes and reporting reforms implemented over the past

decade contributed to an increase in the informativeness of earnings? The finding that analyst

following is positively associated with price revision activity at earnings announcements merits

further study as well. What role do analysts' information acquisition and dissemination decisions

play in this finding? Does this finding reflect the influence of analysts on managers’ financial

reporting and voluntary disclosure decisions? We look to further research to shed light on these

questions and to elucidate the forces that underlie the patterns documented in our study.

29
 REFERENCES

Atiase, R.K. 1985. Predisclosure information, firm capitalization, and security price behavior
around earnings announcements. Journal of Accounting Research 23: 21-36.

Ball, R. 2013. Accounting Informs Investors and Earnings Management is Rife: Two
Questionable Beliefs. Accounting Horizons 27: 847–853.

Ball, R., and P. Brown. 1968. An empirical evaluation of accounting income numbers. Journal of
Accounting Research 6: 159–77.

Ball, R., and L. Shivakumar. 2008. How much new information is there in earnings? Journal of
Accounting Research 46: 975–1016.

Bamber, L, T. Christensen, and K. Gaver. 2000. Do we really ‘‘know’’ what we think we know?
A case study of seminal research and its subsequent overgeneralization. Accounting
Organizations and Society 25: 103–129.

Barth, M. E., W. H. Beaver, and W. R. Landsman, 1998. Relative valuation roles of equity book
value and net income as a function of financial health. Journal of Accounting and Economics 25,
1–34.

Barth, M. E., R. Kasznik and M. McNichols, 2001. Analyst coverage and intangible assets.
Journal of Accounting Research 39: 1–34.

Basu, S. 1997. The conservatism principle and the asymmetric timeliness of earnings. Journal of
Accounting & Economics 24: 3–37.

Bernard, V., Thomas, J. 1989. Post-earnings-announcement drift: delayed price response or risk
premium? Journal of Accounting Research 27: 1–36.

Beaver, W., 1968. The information content of annual earnings announcements. Journal of
Accounting Research 6 (Supplement): 67–92.

Beaver, W., M.Corriea, and M. McNichols, 2012. Do differences in financial reporting attributes
impair the predictive ability of financial ratios for bankruptcy? Review of Accounting Studies 17:
969-1010

Chen, S., M. DeFond and C. Park, 2002. Voluntary disclosure of balance sheet information in
quarterly earnings announcements. Journal of Accounting and Economics 33: 229–251.

Collins, D., Li, O, Xie, H., 2009. What drives the increased informativeness of earnings
announcements over time? Review of Accounting Studies 14: 1–30.

Collins, D. W., M. Pincus, and H. Xie, 1999. Equity valuation and negative earnings: the role of
book value of equity. The Accounting Review 74: 29–61.

30
DeFond, M. and M. Hung, 2003. An empirical analysis of analysts’ cash flow forecasts. Journal
of Accounting and Economics 35: 73–100.

Francis, J., Schipper, K., and L. Vincent, 2002a. Expanded disclosures and the increased
usefulness of earnings announcements. The Accounting Review 77: 515–546.

Francis, J., Schipper, K., and L. Vincent, 2002b. Earnings announcements and competing
information. Journal of Accounting & Economics 33: 313–342.

Givoly, D. and Hayn, C., 2000. The changing time-series properties of earnings, cash flows and
accruals: has financial reporting become more conservative? Journal of Accounting and
Economics 29: 287–320.

Gow, I. G. Ormazabal, D. Taylor. 2012. Correcting for cross-sectional and time-series

dependence in accounting research. The Accounting Review 85: 483-512

Hayn, C., 1995. The information content of losses. Journal of Accounting and Economics 20:
125-153.

Healy, P. 1985. The effect of bonus schemes on accounting decisions. Journal of Accounting and
Economics 7: 85-107.

Kasznik, R and Lev, B, 1995. To warn or not to warn: management disclosures in the face of an
earnings surprise. The Accounting Review 70: 113–134.

Landsman, W and Maydew, E, 2002. Has the information content of quarterly earnings
announcements declined in the past three decades? Journal of Accounting Research 40: 797–
808.

Lev, B., and P. Zarowin, 1999. Boundaries of Financial Reporting. Journal of Accounting
Research 37: 353–85.

Lo, K., Lys, T., 2001. Bridging the gap between value relevance and information content.
Working Paper.

Miller, G. S. (2002), Earnings Performance and Discretionary Disclosure. Journal of Accounting

Research, 40: 173–204.

Patell, J.M., 1976. Corporate forecasts of earnings per share and stock price behavior: empirical
tests. Journal of Accounting Research 14: 246–276.

Shores, D. 1990. The association between interim information and security returns surrounding
earnings announcements. Journal of Accounting Research 18: 164–181.

31
 Appendix 1: The Construction of TCU

For each earnings quarterly announcement i , we have the Estimation Period (“EP”) and

the Testing Period (“TP”).

The Estimation Period (“EP”)

We define EP to be from trading day t − 130 to trading day t − 10 and from trading day

t + 10 to trading day t + 130 , where t is the day of earnings announcement We require

the number of observations with nonzero returns in EP to be at least 40.

For TCU, we accumulate daily return data into three-day cumulative returns and run the

market model with three-day cumulative returns. We obtain the estimates of α 3day i and

β3day i , a3day i and b3day i . We then calculate the residual returns and the variance

𝑉𝑉𝑉𝑉𝑉𝑉3𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑.

The Testing Period (“TP”)

We define TP to be from trading day t − 1 to t + 1 .

For TCU, we use a3day i and b3day i to calculate the three-day cumulative residual

return µ 3day i,t .1

µ 3day 2 i,t
TCU i = 1

Var3dayµi

32
 Appendix 2: The Nonparametric Procedure

Step 1: For each quarterly earnings announcement, we randomly draw a trading day from

EP and call it the simulated nonreport announcement day. This stratified random

sampling process would generate the same number of simulated nonreport-earnings

announcements as the number of quarterly earnings announcements in our event sample.

For each simulated nonreport announcement, we define the simulated nonreport

estimation period (“SNEP”) to be from trading day t ' − 130 to trading day t ' − 10 and

from trading day t ' + 10 to trading day t ' + 130 . We require that the number of

observations in SNEP to be at least 40. We define the simulated nonreport testing period

(“SNTP”) to be from trading day t ' − 1 to t ' + 1 . Here t ' is the day of the simulated

nonreport earnings announcement.

Step 2: We calculate TCU for each simulated nonreport-earnings announcement using

data from SNEP and SNTP. We then calculate TCU_mean and TCU_median for each

calendar year.

Step 3: We repeat Step 1 and Step 2 for 1000 times, and obtain the distributions of

TCU_mean and TCU_median for each calendar year. Because these distributions do not

use information from actual earnings announcements, they are the distributions under the

null hypothesis that earnings announcements do not have information content.

33
34
 Figure 1
TCU_Mean
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

Event P1 P10 P50 P90 P99

TCU_Median
1.2

1.0

0.8

0.6

0.4

0.2

0.0

Event P1 P10 P50 P90 P99

The Y-axis is the mean of TCU by calendar year. Event includes 700,000 actual quarterly earnings
announcements. P1, P10, P50, P90 and P99 are the 1st, 10th, 50th, 90th, 99th percentiles of the
distributions of the means of TCU under the null hypothesis that earnings do not have
information content. Refer to Appendix 2 on how we construct the null distributions. The
underlying numbers for Figure 1 are reported in Table 1, Panels A through B.

35
 Figure 2
Mean TCU Loss/Profit
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
LOSS PROFIT

Median TCU Loss/Profit

1.2
1.0
0.8
0.6
0.4
0.2
0.0
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
LOSS PROFIT

The Y-axis is the mean or median of the information content of earnings announcements, TCU. If
PTEBS, Pre-Tax Earnings Before Special Items, is positive, we include that in the Profit portfolio; if
PTEBS is negative, we include that in the Loss portfolio. The X-axis is the calendar year. Our sample
includes 554,796 firm-quarter observations from 1976 to 2011, of which 406,604 are profit firm quarters
and 148,192 are loss firm-quarters. All variables are winsorized at 1 and 99 percent by calendar year

36
 Figure 3
Percentage of Loss Firm-Quarters
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
The Y-axis is the percentage of Loss firm-quarters for each calendar year. If PTEBS, Pre-Tax
Earnings Before Special Items, is negative, we categorize the firm-quarter as a Loss firm-quarter.
The X-axis is the calendar year. Our sample includes 554,796 firm-quarter observations from
1976 to 2011, of which 406,604 are profit firm quarters and 148,192 are loss firm-quarters.

37
 Figure 4
Mean TCU by SIZE Percentile (1 smallest)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1
5
9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
Median TCU by SIZE Percentile (1 smallest)
1.5

1.2

0.9

0.6

0.3

0.0
1
5
9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97

The Y-axis is the mean or median of the information content of earnings announcements, TCU.
We assign firm-quarters with the lowest LCV to percentile 1 and firm-quarters with the highest
LCV to percentile 100. The X-axis is the LCV percentile. Our sample includes 700,000 firm-
quarter observations from 1971 to 2011. All variables are winsorized at 1 and 99 percent for the
whole sample.

38
 Figure 5

Mean TCU by SIZE Quartiles (1 smallest)

5.0

4.0

3.0

2.0

1.0

0.0

LCV1 LCV2 LCV3 LCV4

Median TCU by SIZE Quartiles (1 smallest)

1.8
1.5
1.2
0.9
0.6
0.3
0

LCV1 LCV2 LCV3 LCV4

The Y-axis is the mean or median of the information content of earnings announcements,
TCU. For each calendar year, we assign firm-quarters with the lowest LCV to quartile 1
and firm-quarters with the highest LCV to quartile 4. The X-axis is calendar year. Our
sample includes 700,000 firm-quarter observations from 1971 to 2011. All variables are
winsorized at 1 and 99 percent by calendar year.

39
 Figure 6
Mean TCU by NUMESTQ Categories
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0 1 2 3 4 5 6to7 8to10 11to15 16to25 26up

Median TCU by NUMESTQ Categories

1.5
1.2
0.9
0.6
0.3
0.0
0 1 2 3 4 5 6to7 8to10 11to15 16to25 26up

# Analyst Following Nobs

0 242,693
1 75,143
2 52,990
3 40,087
4 31,545
5 24,938
6to7 36,715
8to10 33,379
11to15 28,708
16to25 17,731
26up 2,526
The Y-axis is the mean or median of the information content of earnings announcements, TCU.
The X-axis is the number of analysts making forecast of one-year forward annual earnings at
fiscal quarter end. Our sample includes 586,455 firm-quarter observations from 1984 to 2011, out
of which 242,693 firm-quarters does not have analyst coverage. All variables are winsorized at 1
and 99 percent for the whole sample.

40
 Figure 7

Mean TCU by Analyst Coverage Categories

(Zero coverage and four quartiles by calendar year)
6.0
5.0
4.0
3.0
2.0
1.0
0.0
19841986198819901992199419961998200020022004200620082010
ZeroCoverage NUMR1 NUMR2 NUMR3 NUMR4

Median TCU by Analyst Coverage Categories

(Zero coverage and four quartiles by calendar year)
2.1
1.8
1.5
1.2
0.9
0.6
0.3
0
19841986198819901992199419961998200020022004200620082010
ZeroCoverage NUMR1 NUMR2 NUMR3 NUMR4

The Y-axis is the mean or median of the information content of earnings announcements, TCU.
The X-axis is calendar year. Our sample includes 586,455 firm-quarter observations from 1984 to
2011. ZeroCoverage includes all firm-quarters without analyst coverage from IBES. For firm-
quarters with analyst coverage from IBES, we assign firm-quarters with the lowest analyst
coverage to quartile 1 (NUMR1) and firm-quarters with the highest analyst coverage to quartile 4
(NUMR4). All variables are winsorized at 1 and 99 percent by calendar year.

41
 Table 1 Sampling Distribution of Randomly Chosen Windows vs.
Actual Earnings Announcements
Panel A: TCU_MEAN

Year P1 P5 P10 P25 P50 MEAN P75 P90 P95 P99 Event NOBS
1971 0.95 0.99 1.01 1.05 1.09 1.10 1.14 1.18 1.23 1.31 2.34 1,476
1972 0.99 1.01 1.02 1.04 1.06 1.07 1.09 1.11 1.13 1.21 2.04 6,425
1973 1.06 1.08 1.09 1.11 1.14 1.14 1.16 1.19 1.21 1.30 1.90 8,024
1974 1.06 1.08 1.09 1.11 1.13 1.14 1.16 1.18 1.19 1.23 1.74 9,473
1975 1.07 1.09 1.10 1.12 1.15 1.15 1.18 1.20 1.22 1.26 1.91 9,440
1976 1.02 1.04 1.05 1.07 1.10 1.10 1.13 1.16 1.19 1.26 2.28 9,133
1977 1.02 1.04 1.05 1.08 1.10 1.11 1.13 1.17 1.20 1.29 1.89 9,743
1978 1.05 1.08 1.09 1.12 1.14 1.15 1.17 1.21 1.24 1.36 1.88 9,581
1979 1.04 1.06 1.08 1.10 1.12 1.13 1.16 1.18 1.20 1.25 1.64 9,401
1980 1.08 1.10 1.11 1.13 1.16 1.16 1.18 1.21 1.23 1.27 1.83 9,240
1981 1.05 1.06 1.08 1.10 1.12 1.14 1.15 1.19 1.24 1.53 1.88 8,757
1982 1.05 1.07 1.08 1.10 1.12 1.13 1.16 1.19 1.21 1.41 1.95 9,944
1983 1.08 1.10 1.11 1.13 1.15 1.15 1.18 1.21 1.23 1.29 2.30 12,908
1984 1.07 1.09 1.10 1.12 1.14 1.15 1.17 1.20 1.23 1.29 2.05 14,404
1985 1.06 1.07 1.08 1.10 1.12 1.13 1.15 1.18 1.20 1.23 2.06 14,770
1986 1.09 1.11 1.12 1.14 1.16 1.17 1.19 1.22 1.25 1.32 1.98 14,988
1987 1.13 1.16 1.17 1.19 1.21 1.22 1.24 1.27 1.29 1.32 2.56 16,129
1988 1.12 1.14 1.15 1.18 1.21 1.22 1.24 1.28 1.31 1.60 1.75 16,364
1989 1.05 1.08 1.09 1.11 1.13 1.14 1.17 1.20 1.23 1.28 2.01 16,180
1990 1.07 1.09 1.11 1.13 1.15 1.16 1.19 1.22 1.25 1.30 2.11 15,908
1991 1.09 1.11 1.12 1.13 1.16 1.17 1.19 1.23 1.25 1.31 2.43 16,193
1992 1.07 1.08 1.09 1.11 1.13 1.13 1.15 1.18 1.19 1.23 2.30 17,824
1993 1.07 1.08 1.09 1.11 1.13 1.13 1.15 1.17 1.19 1.22 2.25 19,496
1994 1.07 1.08 1.09 1.10 1.12 1.13 1.15 1.17 1.20 1.24 2.09 22,799
1995 1.08 1.10 1.11 1.12 1.14 1.15 1.17 1.20 1.22 1.25 2.30 24,094
1996 1.09 1.10 1.11 1.13 1.14 1.15 1.17 1.20 1.21 1.25 2.17 25,675
1997 1.09 1.11 1.12 1.13 1.15 1.16 1.18 1.20 1.21 1.26 2.19 26,959
1998 1.12 1.13 1.14 1.17 1.19 1.20 1.23 1.27 1.32 1.47 2.22 27,486
1999 1.12 1.14 1.16 1.18 1.22 1.24 1.26 1.33 1.44 1.61 2.27 26,576
2000 1.16 1.18 1.19 1.21 1.24 1.25 1.28 1.32 1.36 1.58 2.05 28,245
2001 1.11 1.13 1.14 1.16 1.19 1.20 1.23 1.27 1.32 1.56 2.09 26,350
2002 1.14 1.16 1.17 1.19 1.22 1.23 1.26 1.30 1.34 1.44 2.71 24,344
2003 1.10 1.13 1.14 1.16 1.20 1.21 1.23 1.28 1.33 1.72 2.95 22,813
2004 1.07 1.10 1.11 1.13 1.16 1.16 1.19 1.22 1.24 1.30 3.42 22,219
2005 1.10 1.12 1.13 1.15 1.18 1.19 1.22 1.26 1.28 1.33 3.74 22,177
2006 1.10 1.12 1.13 1.16 1.19 1.20 1.22 1.27 1.30 1.37 4.28 21,983
2007 1.05 1.07 1.08 1.11 1.15 1.15 1.18 1.22 1.25 1.30 3.66 21,951
2008 1.11 1.13 1.15 1.17 1.21 1.23 1.26 1.31 1.36 1.89 3.26 21,526
2009 1.11 1.14 1.15 1.18 1.22 1.27 1.28 1.41 1.61 2.01 3.27 20,160
2010 1.05 1.08 1.10 1.13 1.16 1.18 1.21 1.27 1.31 1.41 3.69 19,595
2011 1.10 1.13 1.14 1.17 1.21 1.22 1.25 1.31 1.36 1.50 4.15 19,247
Total 1.18 2.54

The statistic of interest is the mean of the information content of earnings, TCU. Event
includes 700,000 actual quarterly earnings announcements. P1, P10, P50, P90 and P99
are the 1st, 10th, 50th, 90th, 99th percentiles of the distribution of the means of TCU
under the null hypothesis that earnings do not have information content. Refer to
Appendix 2 on how we construct the null distributions.

42
 Panel B: TCU_Median

Year P1 P5 P10 P25 P50 MEAN P75 P90 P95 P99 Event NOBS
1971 0.29 0.30 0.31 0.32 0.33 0.33 0.35 0.36 0.37 0.38 0.55 1,476
1972 0.30 0.31 0.31 0.31 0.32 0.32 0.33 0.34 0.34 0.35 0.57 6,425
1973 0.31 0.31 0.31 0.32 0.33 0.33 0.33 0.34 0.34 0.35 0.50 8,024
1974 0.30 0.30 0.31 0.31 0.32 0.32 0.32 0.33 0.33 0.34 0.44 9,473
1975 0.30 0.31 0.31 0.32 0.32 0.32 0.33 0.33 0.34 0.34 0.47 9,440
1976 0.29 0.30 0.30 0.31 0.31 0.31 0.32 0.32 0.33 0.33 0.55 9,133
1977 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.32 0.33 0.33 0.54 9,743
1978 0.30 0.30 0.31 0.31 0.32 0.32 0.32 0.33 0.33 0.34 0.53 9,581
1979 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.32 0.33 0.33 0.42 9,401
1980 0.30 0.31 0.31 0.32 0.32 0.32 0.33 0.34 0.34 0.35 0.47 9,240
1981 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.32 0.33 0.33 0.46 8,757
1982 0.29 0.29 0.29 0.30 0.30 0.30 0.31 0.31 0.32 0.32 0.51 9,944
1983 0.28 0.28 0.28 0.29 0.29 0.29 0.30 0.30 0.30 0.31 0.50 12,908
1984 0.26 0.26 0.27 0.27 0.27 0.27 0.28 0.28 0.28 0.29 0.49 14,404
1985 0.27 0.28 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.30 0.49 14,770
1986 0.29 0.29 0.30 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.49 14,988
1987 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.52 16,129
1988 0.28 0.28 0.28 0.29 0.29 0.29 0.29 0.30 0.30 0.30 0.40 16,364
1989 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.30 0.30 0.30 0.47 16,180
1990 0.28 0.29 0.29 0.29 0.30 0.30 0.30 0.31 0.31 0.31 0.51 15,908
1991 0.29 0.29 0.29 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.55 16,193
1992 0.29 0.30 0.30 0.30 0.31 0.31 0.31 0.32 0.32 0.32 0.56 17,824
1993 0.31 0.31 0.32 0.32 0.32 0.32 0.33 0.33 0.33 0.34 0.59 19,496
1994 0.31 0.31 0.31 0.32 0.32 0.32 0.33 0.33 0.33 0.34 0.57 22,799
1995 0.30 0.30 0.31 0.31 0.31 0.31 0.32 0.32 0.32 0.32 0.55 24,094
1996 0.30 0.30 0.31 0.31 0.31 0.31 0.32 0.32 0.32 0.32 0.56 25,675
1997 0.29 0.29 0.29 0.29 0.30 0.30 0.30 0.30 0.31 0.31 0.55 26,959
1998 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.28 0.29 0.29 0.49 27,486
1999 0.26 0.26 0.27 0.27 0.27 0.27 0.27 0.28 0.28 0.28 0.44 26,576
2000 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.48 28,245
2001 0.26 0.26 0.26 0.26 0.27 0.27 0.27 0.27 0.27 0.28 0.48 26,350
2002 0.27 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.28 0.29 0.56 24,344
2003 0.27 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.29 0.29 0.63 22,813
2004 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.79 22,219
2005 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.89 22,177
2006 0.27 0.28 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.30 1.00 21,983
2007 0.24 0.25 0.25 0.25 0.25 0.25 0.26 0.26 0.26 0.27 0.84 21,951
2008 0.26 0.27 0.27 0.27 0.27 0.27 0.28 0.28 0.28 0.28 0.75 21,526
2009 0.28 0.28 0.28 0.28 0.29 0.29 0.29 0.29 0.30 0.30 0.80 20,160
2010 0.27 0.28 0.28 0.28 0.29 0.29 0.29 0.29 0.29 0.30 0.91 19,595
2011 0.28 0.28 0.28 0.29 0.29 0.29 0.29 0.30 0.30 0.30 0.98 19,247
Total 0.29 0.60

The statistic of interest is the median of the information content of earnings, TCU. Event
includes 700,000 actual quarterly earnings announcements. P1, P10, P50, P90 and P99
are the 1st, 10th, 50th, 90th, 99th percentiles of the distribution of the medians of TCU
under the null hypothesis that earnings do not have information content. Refer to
Appendix 2 on how we construct the null distributions.

43
 Table 2 Rank Test
For each calendar year, suppose the value for our event sample is only exceeded by q of
the 1000 values from the null distribution, the probability of observing the value under
the null hypothesis is p = q/1000. The two columns from the left list the p-values for the
four statistics. We adjust for family-wise error rate using Bonferroni’s Correction
Method. The three columns from the right list the adjusted significance level for given α
s.
Pvalue for Individual Years
alpha alpha alpha
Year TCU_Mean TCU_Median =0.01 =0.05 =0.1
1971 0 0 0.0002 0.0012 0.0024
1972 0 0 0.0002 0.0012 0.0024
1973 0 0 0.0002 0.0012 0.0024
1974 0 0 0.0002 0.0012 0.0024
1975 0 0 0.0002 0.0012 0.0024
1976 0 0 0.0002 0.0012 0.0024
1977 0 0 0.0002 0.0012 0.0024
1978 0 0 0.0002 0.0012 0.0024
1979 0 0 0.0002 0.0012 0.0024
1980 0 0 0.0002 0.0012 0.0024
1981 0 0 0.0002 0.0012 0.0024
1982 0 0 0.0002 0.0012 0.0024
1983 0 0 0.0002 0.0012 0.0024
1984 0 0 0.0002 0.0012 0.0024
1985 0 0 0.0002 0.0012 0.0024
1986 0 0 0.0002 0.0012 0.0024
1987 0 0 0.0002 0.0012 0.0024
1988 0 0 0.0002 0.0012 0.0024
1989 0 0 0.0002 0.0012 0.0024
1990 0 0 0.0002 0.0012 0.0024
1991 0 0 0.0002 0.0012 0.0024
1992 0 0 0.0002 0.0012 0.0024
1993 0 0 0.0002 0.0012 0.0024
1994 0 0 0.0002 0.0012 0.0024
1995 0 0 0.0002 0.0012 0.0024
1996 0 0 0.0002 0.0012 0.0024
1997 0 0 0.0002 0.0012 0.0024
1998 0 0 0.0002 0.0012 0.0024
1999 0 0 0.0002 0.0012 0.0024
2000 0 0 0.0002 0.0012 0.0024
2001 0 0 0.0002 0.0012 0.0024
2002 0 0 0.0002 0.0012 0.0024
2003 0 0 0.0002 0.0012 0.0024
2004 0 0 0.0002 0.0012 0.0024
2005 0 0 0.0002 0.0012 0.0024
2006 0 0 0.0002 0.0012 0.0024
2007 0 0 0.0002 0.0012 0.0024
2008 0 0 0.0002 0.0012 0.0024
2009 0 0 0.0002 0.0012 0.0024
2010 0 0 0.0002 0.0012 0.0024
2011 0 0 0.0002 0.0012 0.0024

44
 TABLE 3
Panel A: Descriptive Statistics
Variable Nobs Min P1 P5 P10 P25 Mean Median P75 P90 P95 P99 Max
TCU 496,870 0.00 0.00 0.00 0.01 0.11 2.34 0.59 2.23 6.20 11.00 29.80 29.80
T 496,870 0.00 0.00 2.00 4.00 10.00 14.95 15.00 21.00 25.00 26.00 27.00 27.00
POST2000 496,870 0.00 0.00 0.00 0.00 0.00 0.44 0.00 1.00 1.00 1.00 1.00 1.00
T*POST2000 496,870 0.00 0.00 0.00 0.00 0.00 9.61 0.00 21.00 25.00 26.00 27.00 27.00
LOSS 496,870 0.00 0.00 0.00 0.00 0.00 0.28 0.00 1.00 1.00 1.00 1.00 1.00
LCV 496,870 1.11 1.11 2.05 2.62 3.65 5.13 4.98 6.48 7.84 8.72 10.43 10.43
NUMESTQ 496,870 0.00 0.00 0.00 0.00 0.00 2.93 1.00 4.00 9.00 13.00 22.00 22.00
FIN 496,870 0.00 0.00 0.00 0.00 0.00 0.19 0.00 0.00 1.00 1.00 1.00 1.00
LAG 496,870 11.00 11.00 16.00 18.00 24.00 36.55 33.00 44.00 58.00 78.00 105.00 105.00
NONDEC31 496,870 0.00 0.00 0.00 0.00 0.00 0.35 0.00 1.00 1.00 1.00 1.00 1.00
ABSFE_STREET 277,613 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.01 0.02 0.04 0.20 0.20

Panel B: Correlation Matrix

Pearson (Upper Triangle) and Spearman (Lower Triangle)
Bolded Correlation are significant at 5% level
Variable TCU T POST2000 T*POST2000 LOSS LCV NUMESTQ FIN LAG NONDec31 ABSFE_STREET
TCU - 0.097 0.099 0.107 -0.072 0.078 0.108 -0.039 -0.035 0.014 -0.007
T 0.093 - 0.825 0.865 0.070 0.296 0.254 0.121 0.011 -0.179 -0.001
POST2000 0.090 0.861 - 0.982 0.064 0.254 0.214 0.090 0.034 -0.147 0.018
T*POST2000 0.103 0.909 0.947 - 0.057 0.270 0.232 0.088 0.042 -0.150 0.026
LOSS -0.081 0.069 0.064 0.051 - -0.284 -0.154 -0.149 0.261 -0.005 0.353
LCV 0.119 0.297 0.251 0.272 -0.283 - 0.640 0.040 -0.302 -0.167 -0.289
NUMESTQ 0.138 0.251 0.195 0.224 -0.166 0.663 - -0.066 -0.259 -0.063 -0.142
FIN -0.043 0.116 0.090 0.085 -0.149 0.039 -0.078 - -0.099 -0.184 -0.010
LAG -0.058 0.042 0.057 0.077 0.268 -0.324 -0.334 -0.119 - 0.051 0.210
NonDec31 0.010 -0.178 -0.147 -0.148 -0.005 -0.171 -0.088 -0.184 0.051 - -0.009
ABSFE_STREET -0.001 0.013 0.024 0.054 0.370 -0.364 -0.277 -0.071 0.228 0.000 -

45
 TABLE 4
Regressions with TCU as Dependent Variable and Analyst Coverage as a Categorical Variable

The sample comprises all US common stocks on NYSE, Amex and Nasdaq with coverage on CRSP and
Compustat for firms with available data. The dependent variable is the Three-day Cumulative U-statistic
(“TCU”). T is a trend variable that takes on value from 0 to 27 for calendar years 1984 to 2011. POST2000
is an indicator variable that is equal to 1 for firm-quarters in calendar years from 2001 to 2011 and 0
otherwise. LOSS is an indicator variable that is equal to 1 if PTEBS, Pre-Tax Earnings Before Special
Items, is negative and 0 otherwise. LCV is the natural log of market capitalization. NUMESTQ is analyst
following. FIN is an indicator variable that is equal to 1 if a firm has SIC code between 6000 and 6999 and
0 otherwise. LAG is the number of days after the end of the fiscal quarter that earnings are announced.
NONDEC31 is an indicator variable that is equal to 1 for firm-quarters with Non-Dec31 fiscal year end and
0 otherwise. We winsorize all variables at 1 and 99% for the whole sample and run ordinary least squares
regressions. *** [**](*) refers to significance at the 1% [5%](10%) level. Following Gow, Ormazabal and
Taylor (2012), we cluster standard errors by firm and calendar quarter.

Model 1 2 3 4 5 6 7
Intercept 1.745*** 1.989*** 2.304*** 2.286*** 1.975*** 2.015*** 2.275***
16.45 15.39 19.77 19.82 16.12 17.71 18.84
T 0.069*** 0.036*** 0.006 0.014 0.011 0.006 0.008
10.97 3.11 0.58 1.41 1.08 0.6 0.78
POST2000 0.593*** -1.572*** -1.289*** -1.253*** -1.117** -1.120**
3.08 -3.17 -2.73 -2.65 -2.34 -2.34
T*POST2000 0.116*** 0.101*** 0.098*** 0.091*** 0.091***
4.85 4.41 4.3 3.94 3.94
LOSS -0.837*** -0.775*** -0.748*** -0.793***
-18.94 -20.58 -19.4 -20.74
FIN -0.615*** -0.609*** -0.588*** -0.724*** -0.702*** -0.609*** -0.609***
-12.26 -12.05 -11.5 -13.29 -13.6 -12.72 -12.62
LCV 0.055*** -0.055***
4.56 -5.12
NUMESTQ 0.070*** 0.084***
13.68 17.23
LAG -0.011*** -0.011*** -0.012*** -0.007*** -0.005*** -0.003*** -0.003***
-9.12 -9.59 -10.28 -6.75 -5.95 -3.18 -4.09
NONDEC31 0.254*** 0.255*** 0.246*** 0.224*** 0.252*** 0.244*** 0.220***
7.83 7.85 7.65 7.33 7.81 7.93 6.96
Adj R2 1.42% 1.55% 1.75% 2.33% 2.37% 2.69% 2.72%
Nobs 496870 496870 496870 496870 496870 496870 496870

46
 TABLE 5
Regressions with TCU as Dependent Variable and Analyst Coverage treated as Indicator Variables
The sample comprises all US common stocks on NYSE, Amex and Nasdaq with coverage on CRSP and
Compustat for firms with available data. T is a trend variable that takes on value from 0 to 27 for calendar
years 1984 to 2011. POST2000 is an indicator variable that is equal to 1 for firm-quarters in calendar years
from 2001 to 2011 and 0 otherwise. LOSS is an indicator variable that is equal to 1 if PTEBS, Pre-Tax
Earnings Before Special Items, is negative and 0 otherwise. LCV is the natural log of market capitalization.
NUMiQ is an indicator variable that is equal to 1 if the number of analyst following is i and 0 otherwise.
NUMijQ is an indicator variable that is equal to 1 if the number of analyst following is between i and j and
0 otherwise. FIN is an indicator variable that is equal to 1 if a firm has SIC code between 6000 and 6999
and 0 otherwise. LAG is the number of days after the end of the fiscal quarter that earnings are announced.
NONDEC31 is an indicator variable that is equal to 1 for firm-quarters with Non-Dec31 fiscal year end and
0 otherwise. We winsorize all variables at 1 and 99% run ordinary least squares regressions. *** [**](*)
refers to significance at the 1% [5%](10%) level. We cluster standard errors by firm and calendar quarter.
Model 1 2 3
Intercept 1.957*** 2.272*** 2.193***
17.18 18.69 23.35
T 0.004 0.006
0.46 0.64
POST2000 -1.088** -1.086**
-2.28 -2.26
T*POST2000 0.089*** 0.090***
3.88 3.88
LOSS -0.734*** -0.790*** -0.652***
-19.85 -20.77 -17.58
LCV -0.073*** -0.012
-7.02 -0.94
NUM1Q 0.009 0.050** 0.093***
0.37 2.2 3.91
NUM2Q 0.157*** 0.232*** 0.270***
5 8 7
NUM3Q 0.276*** 0.379*** 0.454***
6.32 9.2 9.41
NUM4Q 0.441*** 0.565*** 0.679***
7.38 10.03 10.19
NUM5Q 0.549*** 0.692*** 0.831***
8.43 11.5 11.96
NUM67Q 0.720*** 0.884*** 1.057***
10.32 13.88 14.13
NUM810Q 0.940*** 1.137*** 1.330***
11.6 15.03 15.57
NUM1115Q 0.988*** 1.231*** 1.461***
11.56 15.29 15.81
NUM1625Q 1.025*** 1.325*** 1.615***
10.9 14.02 14.44
NUM26upQ 0.829*** 1.175*** 1.538***
4.43 6.25 7.32
FIN -0.585*** -0.579*** -0.441***
-13.06 -12.75 -10.19
LAG -0.002** -0.003*** 0.001
-2.57 -3.43 1.32
NONDEC31 0.260*** 0.232*** 0.139***
8.22 7.19 4.6
Adj R2 2.76% 2.81% 1.78%
Nobs 496870 496870 496870

47
 Table 6
Regressions with TCU as Dependent Variable and Analyst Coverage treated as a Categorical
Variable, Unsigned Street Earnings Surprise Included
The sample comprises all US common stocks on NYSE, Amex and Nasdaq with coverage on CRSP and
Compustat for firms with available data. The dependent variable is the Three-day Cumulative U-statistic
(“TCU”). T is a trend variable that takes on value from 0 to 27 for calendar years 1984 to 2011. POST2000
is an indicator variable that is equal to 1 for firm-quarters in calendar years from 2001 to 2011 and 0
otherwise. LOSS is an indicator variable that is equal to 1 if PTEBS, Pre-Tax Earnings Before Special
Items, is negative and 0 otherwise. LCV is the natural log of market capitalization. NUMESTQ is analyst
following. FIN is an indicator variable that is equal to 1 if a firm has SIC code between 6000 and 6999 and
0 otherwise. LAG is the number of days after the end of the fiscal quarter that earnings are announced.
NONDEC31 is an indicator variable that is equal to 1 for firm-quarters with Non-Dec31 fiscal year end and
0 otherwise. ABSFE_STREET is the absolute value of the difference between IBES realized earnings and
median analyst forecast scaled by price. For Model 3 and 4, we require each firm-quarter observation to
have ABSFE_STREET available. We winsorize all variables at 1 and 99% run ordinary least squares
regressions. *** [**](*) refers to significance at the 1% [5%](10%) level. We cluster standard errors by
firm and calendar quarter.
Model 1 2 3
Intercept 2.275*** 1.971*** 1.837***
18.84 12.91 11.84
T 0.008 0.022* 0.025**
0.78 1.75 2.00
POST2000 -1.120** -1.059* -0.972
-2.34 -1.72 -1.56
T*POST2000 0.091*** 0.094*** 0.089***
3.94 3.25 3.01
LOSS -0.793*** -0.807*** -0.901***
-20.74 -16.52 -18
LCV -0.055*** -0.024 -0.004
-5.12 -1.51 -0.23
NUMESTQ 0.084*** 0.060*** 0.057***
17.23 12.17 11.64
FIN -0.609*** -0.619*** -0.639***
-12.62 -10.36 -10.58
LAG -0.003*** -0.005*** -0.006***
-4.09 -3.36 -4.11
NONDec31 0.220*** 0.306*** 0.312***
6.96 6.67 6.79
ABSFE_STREET 5.103***
8.52
adjr2 2.72% 2.98% 3.04%
nobs 496870 277613 277613

48
 Table 7

Robustness check with within-year ranked LCV and NUMEST variables

The sample comprises all US common stocks on NYSE, Amex and Nasdaq with coverage on CRSP and
Compustat for firms with available data. The dependent variable is the Three-day Cumulative U-statistic
(“TCU”). T is a trend variable that takes on value from 0 to 27 for calendar years 1984 to 2011. POST2000
is an indicator variable that is equal to 1 for firm-quarters in calendar years from 2001 to 2011 and 0
otherwise. LOSS is an indicator variable that is equal to 1 if PTEBS, Pre-Tax Earnings Before Special
Items, is negative and 0 otherwise. LCVPCT is the percentile rank of the natural log of market
capitalization by calendar year. NUMR is zero for firm-quarters with zero analyst coverage. For firm-
quarters with analyst coverage from IBES, we assign firm-quarters with the lowest analyst coverage to
quartile 1 (NUMR=1) and firm-quarters with the highest analyst coverage to quartile 4 (NUMR=4). FIN is
an indicator variable that is equal to 1 if a firm has SIC code between 6000 and 6999 and 0 otherwise. LAG
is the number of days after the end of the fiscal quarter that earnings are announced. NONDEC31 is an
indicator variable that is equal to 1 for firm-quarters with Non-Dec31 fiscal year end and 0 otherwise.
ABSFE_STREET is the absolute value of the difference between IBES realized earnings and median
analyst forecast scaled by price. For Model 3 and 4, we require each firm-quarter observation to have
ABSFE_STREET available. We winsorize all variables at 1 and 99% run ordinary least squares regressions.
*** [**](*) refers to significance at the 1% [5%](10%) level. We cluster standard errors by firm and
calendar quarter.

Model 1 2 3
Intercept 2.027*** 1.883*** 2.079***
16.79 16.35 17.01
T 0.014 0.007 0.005
1.43 0.66 0.47
POST2000 -1.288*** -1.146** -1.115**
-2.7 -2.39 -2.35
TPOST2000 0.101*** 0.094*** 0.093***
4.37 4.1 4.08
LOSS -0.779*** -0.746*** -0.790***
-20.69 -19.82 -20.48
LCVPCT 0.004*** -0.004***
4.2 -5.71
NUMR 0.204*** 0.248***
10.58 13.96
FIN -0.703*** -0.596*** -0.592***
-13.7 -13.05 -12.8
LAG -0.005*** -0.002*** -0.003***
-6.02 -2.66 -3.42
NONDec31 0.251*** 0.259*** 0.238***
7.7 8.2 7.33
adjr2 0.0236 0.0265 0.0268
nobs 496870 496870 496870

49