The relationship between returns and unexpected earnings: A global analysis by countries and accounting regimes.

摘要

Numerous studies have documented a significant market reaction to the release of earnings in the United States and many foreign countries. Surprisingly, few attempts have been made to examine market reactions to earnings over shorter return windows in an international setting. The purpose of this dissertation is to globally examine the relatively short-term market reaction to unexpected earnings defined by both change in EPS (CEPS) and analysts' forecast errors (AFE).;Two sets of hypotheses are examined in this study. The first set of hypotheses examines the earnings-returns relationship over the entire research period. First, the existence of a market response to either CEPS or AFE is examined. In addition, the information content of two competing proxies for investors' expectations of earnings are examined: change in EPS and analysts' forecast errors.;The second set of hypotheses examines the stability of the earnings-returns relationship across time. As time passes, investors have gained access to more financial and non-financial information (including analysts' forecasts). These changes are likely to affect formation of investors' expectations of earnings. The release of earnings is expected to yield a more substantial market reaction in later periods. In addition, information content of analysts' forecasts is expected to increase over time.;Results from the single-period hypotheses provide evidence on the existence of a relationship between earnings and returns in all accounting regimes and most countries. There is little evidence of a difference in relative explanatory power between AFE and CEPS. Thus, it appears that market participants use a combination of analysts' forecasts and prior year's earnings to form expectations of current year's earnings.;The results of multi-period analysis document changes in the earnings-returns relationship over time. The significance of the earnings-returns relationship increases over time. In the early (late) time period, there is evidence of a significant reaction to the release of unexpected earnings in two (seven) of the eight regimes. In many regimes, significant increases in the CEPS and AFE coefficients are identified between the early and late periods. In addition, a correlation is found between explanatory power, significance of variables and time.