Information Spillovers at Earnings Announcements

Abstract

Research documents price co-movements, or “spillovers,” between focal firms and their peers at focal firms’ earnings announcements. We find that both signed and absolute co-movements between focal- and peer-firm returns are significantly lower at earnings-announcement dates compared to other dates. Analytically, we demonstrate that co-movements do not necessarily indicate common information; instead, co-movements measure the relative proportion of focal firm-specific information to common information in focal-firm earnings announcements. We study three settings where information transfers might be higher: when focal firms report significant earnings surprises, are industry leaders, or share correlated earnings patterns with peer firms. We continue to find lower return correlations during focal-firm earnings announcements. We conduct two alternative tests but fail to find evidence that common information released during focal-firm earnings announcements is significantly greater than on other days. These results raise doubt about the extent of the information externality attributable to financial-report releases.