TY - JOUR
T1 - Earnings Quality and Trading Volume Reactions Around Earnings Announcements: International Evidence
AU - Chen, Jeff Zeyun
AU - Choy, Siu Kai
AU - Lobo, Gerald
AU - Zheng, Ying
N1 - Funding Information:
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Zheng gratefully acknowledges the financial support provided by the National Natural Science Foundation of China (Grant No. U1811462, 72072190).
Publisher Copyright:
© ©The Author(s) 2022.
PY - 2022/9/7
Y1 - 2022/9/7
N2 - Using a cross-country setting, we document differences in the relation between earnings quality and the two components of trading volume around earnings announcements, one related to differential interpretation of the earnings signal and the other related to pre-event differential information precision. We find that in countries with stronger investor protection, less corrupt governments, and more liquid stock markets, a noisier earnings signal increases differential interpretation of the earnings signal but decreases investors’ incentive for information acquisition before earnings announcements, leading to lower pre-event differential information precision. However, these trading patterns flip in countries with weaker investor protection, more corrupt governments, and less liquid stock markets. We also find that institutional investors in countries with stronger institutions are likely to benefit more from their superior information processing skills, leading to more information acquisition both at and before earnings announcements. Overall, our study adds to the literature by documenting significant cross-country variations in investors’ trading volume reactions to earnings quality.
AB - Using a cross-country setting, we document differences in the relation between earnings quality and the two components of trading volume around earnings announcements, one related to differential interpretation of the earnings signal and the other related to pre-event differential information precision. We find that in countries with stronger investor protection, less corrupt governments, and more liquid stock markets, a noisier earnings signal increases differential interpretation of the earnings signal but decreases investors’ incentive for information acquisition before earnings announcements, leading to lower pre-event differential information precision. However, these trading patterns flip in countries with weaker investor protection, more corrupt governments, and less liquid stock markets. We also find that institutional investors in countries with stronger institutions are likely to benefit more from their superior information processing skills, leading to more information acquisition both at and before earnings announcements. Overall, our study adds to the literature by documenting significant cross-country variations in investors’ trading volume reactions to earnings quality.
UR - http://www.scopus.com/inward/record.url?scp=85138328824&partnerID=8YFLogxK
U2 - 10.1177/0148558X221117722
DO - 10.1177/0148558X221117722
M3 - Article
SN - 0148-558X
JO - Journal of Accounting, Auditing and Finance
JF - Journal of Accounting, Auditing and Finance
ER -
