Does firm life cycle stage affect investor perceptions? Evidence from earnings announcement reactions

• 成果类型: Article
• 署名作者: Fodor, Andy; Lovelace, Kelley Bergsma; Singal, Vijay; Tayal, Jitendra
• 署名单位: University System of Ohio; Ohio University; University System of Ohio; Ohio University; Virginia Polytechnic Institute & State University; University System of Ohio; Ohio University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-022-09749-2
• 发表日期: 2024
• 页码: 1039-1096
• 关键词: cross-section; information-content; stock-prices; institutional investors; operating performance; corporate governance; FULLY REFLECT; Cash flows; RISK; GROWTH

摘要

This paper argues that firms in certain life cycle stages may be more subjectively valued by individual investors, leading to an optimistic bias in stock prices that is subsequently corrected upon the release of earnings news. Using a cash flow-based life cycle stage classification, introduction and decline stage companies exhibit three-day cumulative abnormal returns (CARs) around earnings announcements that are at least 112 bps lower than firms in growth, maturity, and shake-out stages. Specifically, introduction and decline stage stocks exhibit less positive reactions to positive earnings surprises and more negative reactions to negative earnings surprises relative to companies in other life cycle stages. Lottery stocks' excess returns around earnings announcements (Liu et al. in Journal of Financial Economics 138: 789-817, 2020) also vary based on firm life cycle stage. Our findings suggest that individual investors' optimistic expectations for introduction and decline stage stocks are met with disappointment when value-relevant earnings news is released. This study demonstrates that firm life cycle stage has real implications for stock price reactions to earnings announcements.