Firm Complexity and Post-Earnings-Announcement Drift

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Firm Complexity and Post-Earnings-Announcement Drift

Authors
Keywords
  • Communication
  • Learning
  • Belief
  • G14 - Information And Market Efficiency
  • Event Studies
  • G12 - Asset Pricing
  • Trading Volume
  • Bond Interest Rates
  • D83 - Search
  • Information And Knowledge
  • M40 - General

Abstract

The paper shows that the post earnings announcement drift is stronger for conglomerates, despite conglomerates being larger, more liquid, and more actively researched by investors. We attribute this finding to slower information processing about complex firms and show that the post earnings announcement drift is positively related to measures of conglomerate complexity. We also find that the post earnings announcement drift is stronger for new conglomerates than it is for existing conglomerates and that investors are most confused about complicated firms that expand from within rather than firms that diversify into new business segments via mergers and acquisitions.

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