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

This study examines the information content of quarterly earnings announcements, measured as the magnitude of stock price revision at earnings announcements relative to price revision at other times. We investigate whether quarterly earnings announcements are informative using a nonparametric approach and 1971-2011 sample period. The findings provide unequivocal evidence that significantly more information is conveyed to investors in the three days around earnings announcements than in randomly chosen three day periods. Furthermore, we find that information content increases over time and dramatically so from 2001 onward. In addition, we investigate cross-sectional variation in the information content of earnings announcements and find it is positively associated with profitability, firm size and analyst coverage.