Does the market react most strongly to the earliest quarterly earnings announcements? In their October 2019 paper entitled “Calendar Rotations: A New Approach for Studying the Impact of Timing using Earnings Announcements”, Suzie Noh, Eric So and Rodrigo Verdi study effects of the relative order of U.S. firm quarterly earnings announcements, which vary systematically for some firms according to the day of the week of the first day of a month. Specifically, they qualify firms by identifying those firms that exhibit systematic earnings announcement schedules (such as Friday of the fourth week after quarter ends, sometimes set in firm bylaws) for at least four consecutive same fiscal quarters. They then for each firm each fiscal quarter:
- Calculate EA Order, ranking of earnings announcement date divided by number of firms with the same fiscal quarter-end.
- Compute change in EA Order compared to the same fiscal quarter last year, indicating a calendar acceleration or delay in announcement. Positive (negative) change in EA Order indicates delay (acceleration)
- Examine effects of change in EA Order on media coverage (number of articles), stock trading volume and stock return from one trading day before to one trading day after earnings announcement.
Using sample of 76,622 firm-quarters during 2004 through 2017, they find that:
- Over time, 10% to 25% of firms exhibit systematic earnings announcement schedules (19,252 firm-quarter observations). Such firms tend to be large, with wide institutional ownership and analyst coverage (making changes in announcement practices difficult).
- Changes in calendar-driven EA Order for firms exhibiting systematic announcement schedules are unrelated to news content of earnings announcements (positive or negative earnings surprises). In contrast, changes in EA Order for other firms relates strongly to earnings news (good news accelerated and bad news delayed).
- Firms exhibiting systematic announcement schedules whose announcements are accelerated:
- Receive unusually high media coverage and therefore heightened investor attention.
- Have unusually high stock trading volumes around announcements.
- Have unusually high returns around earnings announcements. Stocks of firms in the lowest fifth of change in EA Order have average 3-day announcement window premium about 0.5% greater than the average for those in the highest fifth. All premiums reverse predictably, consistent with an investor attention interpretation.
- Effects concentrate early during “earnings seasons.”
- For firms with unsystematic earnings announcement schedules, delays receive high media coverage, consistent with delays meaning bad news and media preference for negative stories.
In summary, evidence suggests that traders may be able to exploit relatively large, transitory earnings announcement premiums among stocks of firms exhibiting systematic announcement schedules and reporting earliest during a quarter.
Cautions regarding findings include:
- The reported effect on the earnings announcement premium is gross, not net. Frictions for buying and selling the stock would reduce the net premium.
- The specified methodology is beyond the reach of many investors, with invested capital and cash reserve likely varying considerably over time. The study does not address attractiveness of exploitation at a portfolio level.
