The timing of industry and firm earnings information in security prices: A re-evaluation

This paper re-evaluates evidence in Ayers and Freeman [Ayers, F., Freeman, R., 1997. Market assessment of industry and firm earnings information. Journal of Accounting and Economics 24, 205-218] suggesting that investors anticipate industry-wide components of earnings earlier than firm-specific components, and that post-earnings-announcement drift following annual earnings announcements is due primarily to firm-specific components of earnings. Our tests indicate that post-announcement drift is entirely attributable to coefficient bias due to measurement errors in the use of realized earnings changes as proxies for unexpected earnings. Also, coefficient differences in the market's anticipation of subsequent-year industry and firm-specific earnings become insignificant when we introduce suitable controls for non-linearity in the return/earnings relation.