How Important Are Semi-Annual Earnings Announcements? An Information Event Perspective

Abstract

Using a method that avoids the need to specify earnings expectations (Ball and Shivakumar 2008), we demonstrate that the period surrounding the semi-annual announcement of Australian firms’ earnings is, on average, an important source of information. Although there is substantial year-to-year variation, we observe no evidence of any significant time trend, and also conclude that a shift from Australian domestic GAAP to IFRS did not impact the association between earnings announcement windows and stock returns. We also find no evidence that the informativeness of earnings announcements varies systematically with firm size, analyst following or economic news (i.e., positive versus negative stock returns, profits versus losses), although we do observe significant variation across industries. Our conclusion is further supported by contrasting the earnings release date with the days immediately prior to release, or high information days other than earnings announcement windows. Using a more precise event window relative to prior studies (i.e., three hours versus three days), we confirm that earnings announcements contain significant new information about fundamentals.