Giving context to accounting numbers

The role of news coverage

Kuo Tay Chen, Hsin Min Lu, Tsai Jyh Chen, Shu Hsing Li, Jian Shuen Lian, Hsinchun Chen

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

Accounting numbers such as earnings per share are an important information source that conveys the value of firms. Previous studies on the return-earnings relation have confirmed that stock prices react to the information content in accounting numbers. However, other information sources such as financial news may also contain value-relevant information and affect investors' reaction to earnings announcements. We quantify news coverage about S&P 500 companies in the Wall Street Journal (WSJ) before earnings announcements and model its interaction with the return-earnings relation. Our empirical results show that news coverage decreases the information content of unexpected earnings and thus leads to a lower earnings response coefficient (ERC) for firms with higher news coverage. Statistically significant interaction between news coverage and unexpected earnings was observed. News coverage does not impact cumulated abnormal returns directly. We further document that this finding is not driven by firm size. The results suggest that financial news may play an important role in conveying value-related information to the markets.

Original languageEnglish (US)
Pages (from-to)673-679
Number of pages7
JournalDecision Support Systems
Volume50
Issue number4
DOIs
StatePublished - Mar 2011

Fingerprint

News
P 500
Conveying
Industry
Information content
Information sources
Earnings-return relation
Earnings announcements
Interaction
Earnings response coefficients
Stock prices
Investors
Earnings per share
Firm size
Empirical results
Abnormal returns
Wall Street Journal

Keywords

  • Earnings response coefficient (ERC)
  • Event study
  • Information content of earnings
  • News coverage effect

ASJC Scopus subject areas

  • Management Information Systems
  • Information Systems
  • Information Systems and Management

Cite this

Giving context to accounting numbers : The role of news coverage. / Chen, Kuo Tay; Lu, Hsin Min; Chen, Tsai Jyh; Li, Shu Hsing; Lian, Jian Shuen; Chen, Hsinchun.

In: Decision Support Systems, Vol. 50, No. 4, 03.2011, p. 673-679.

Research output: Contribution to journalArticle

Chen, Kuo Tay ; Lu, Hsin Min ; Chen, Tsai Jyh ; Li, Shu Hsing ; Lian, Jian Shuen ; Chen, Hsinchun. / Giving context to accounting numbers : The role of news coverage. In: Decision Support Systems. 2011 ; Vol. 50, No. 4. pp. 673-679.
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