Firm complexity and post-earnings announcement drift

• 成果类型: Article
• 署名作者: Barinov, Alexander; Park, Shawn Saeyeul; Yildizhan, Celim
• 署名单位: University of California System; University of California Riverside; Yonsei University; Koc University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-022-09727-8
• 发表日期: 2024
• 页码: 527-579
• 关键词: international diversification; corporate diversification; INFORMATION UNCERTAINTY; REPORT READABILITY; stock returns; cross-section; RISK; ANALYST; momentum; persistence

摘要

We show that the post-earnings announcement drift (PEAD) is stronger for conglomerates than single-segment firms. Conglomerates, on average, are larger than single segment firms, so it is unlikely that limits-to-arbitrage drive the difference in PEAD. Rather, we hypothesize that market participants find it more costly and difficult to understand firm-specific earnings information regarding conglomerates, as they have more complicated business models than single-segment firms. This in turn slows information processing about them. In support of our hypothesis, we find that, compared to single-segment firms with similar firm characteristics, conglomerates have relatively low institutional ownership and short interest, are covered by fewer analysts, and these analysts have less industry expertise and make larger forecast errors. Finally, we find that an increase in organizational complexity leads to larger PEAD and document that more complicated conglomerates have even greater PEAD. Our results are robust to an extensive list of alternative explanations of PEAD as well as alternative measures of firm complexity.