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- Title
Firm complexity and post-earnings announcement drift.
- Authors
Barinov, Alexander; Park, Shawn Saeyeul; Yıldızhan, Çelim
- Abstract
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.
- Subjects
EARNINGS announcements; SHORT selling (Securities); INSTITUTIONAL ownership (Stocks); BUSINESS models; BUSINESS enterprises; INFORMATION processing
- Publication
Review of Accounting Studies, 2024, Vol 29, Issue 1, p527
- ISSN
1380-6653
- Publication type
Article
- DOI
10.1007/s11142-022-09727-8