Number Processing Constraints and Earnings News

• 成果类型: Article
• 署名作者: Karolyi, Stephen; Ruchti, Thomas; Truong, Phong
• 署名单位: United States Department of the Treasury; Office of the Comptroller of the Currency; United States Department of the Treasury; Office of Financial Research; Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.01722
• 发表日期: 2025
• 关键词: neural constraints; cognitive limitations; number processing; earnings news; earnings response coefficients post-earnings announcement drift

摘要

Neuroscience shows that human brains are neurologically constrained to process small numbers linearly and large numbers logarithmically, leading to underreactions to larger numbers as their perceived difference becomes smaller. We test this hypothesis in the context of earnings announcements and find that investors respond less in the short term to earnings news for stocks with high earnings per share magnitudes, exacerbating postearnings announcement drift for these stocks. These findings are distinct from and incremental to several risk -based and behavioral explanations, attenuated by robot presence and present in a quasi -experimental design using stock splits. Our evidence suggests that number processing constraints have implications for stock price efficiency.