Explaining firms’ earnings announcement stock returns using FactSet and I/B/E/S data feeds

Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement-based and 2 cash flow statement-based analyst and management guidance...

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Bibliographic Details
Published in:Review of accounting studies 2022-12, Vol.27 (4), p.1389-1420
Main Authors: Hand, John R. M., Laurion, Henry, Lawrence, Alastair, Martin, Nicholas
Format: Article
Language:English
Subjects:
Accounting
Accounting/Auditing
Balance sheets
Business and Management
Cash flow statements
Corporate Finance
Datasets
Earnings announcements
Financial statements
Independent variables
Investments
Public Finance
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Summary:Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement-based and 2 cash flow statement-based analyst and management guidance surprises—reliably explain firms’ signed earnings announcement returns. No balance sheet or expense surprises are significant. The most important surprises are (i) one-quarter-ahead sales guidance surprise, (ii) analyst sales surprise, (iii) annual Street earnings guidance surprise, and (iv) analyst Street earnings surprise. We also find that the adjusted R 2 s of our multivariate regressions are three times higher than the adjusted R 2 s of univariate Street earnings surprise regressions, and that the four most important surprises account for approximately half of this increase in explanatory power.
ISSN:1380-6653
1573-7136
DOI:10.1007/s11142-021-09597-6