The information content of operations-related disclosures

Abstract

This study examines the information content of firms’ operations-related disclosures (ORDs) and the importance of these disclosures as an information source to stock markets relative to other commonly examined sources of information. I find that ORDs constitute a large portion of corporate press releases. These disclosures are associated with significant stock price reactions and trading volume. The stock price reactions to ORDs are greater than the reactions to 10-K/Q reports and are of similar magnitudes to the reactions to 8-K filings. On average, ORDs explain variation in firms’ quarterly returns to a similar degree as management earnings forecasts and 10-K/Q reports for the full sample and to a greater degree for small firms and firms with lower earnings quality.

Asymmetric Inefficiency in the Market Response to Non‐earnings 8‐K Information*

“…Noh et al (2019) observe that, since the regulatory change, 8‐Ks have become a substitute for management guidance and firms have come to rely more on them to convey general types of news, rather than primarily negative news. Ma (2019) estimates that 8‐Ks explain variations in quarterly returns to a similar degree as management earnings forecasts, 10‐K/Q filings, and operations‐related disclosures.…”

“…The aim of the requirement is to ensure that investors are promptly informed of material corporate events. Prior studies have concluded that, consistent with this purpose, non‐earnings 8‐Ks provide timely information that is material to investors (Lerman and Livnat 2010; McMullin et al 2019; Noh et al 2019) and explain variations in quarterly returns to a degree similar to other disclosures, such as management earnings forecasts (Ma 2019). The objective of this paper is twofold.…”

“…For another type of negative event—the resignation of an independent director—Bar‐Hava et al (2018) find that investors underreact to 8‐K disclosures, probably because directors obfuscate the reasons for their departure. Motivated by the overall importance of non‐earnings 8‐Ks in price formation (Lerman and Livnat 2010; Ma 2019; McMullin et al 2019) and especially the lack of evidence on the pricing efficiency for positive 8‐K news, this study comprehensively investigates the pricing efficiency of these disclosures for all types of events and separately analyzes good and bad news.…”

CEO overconfidence and the tone of press release

“…Merkley (2013) collects narrative R&D disclosures in 10‐K reports and shows that managers adjust R&D disclosures based on earnings performance to provide relevant information. Ma (2019) finds that investor reactions to operations‐related disclosures are larger in magnitude than their reactions to 10‐K/Q reports and 8‐K filings. Cao et al (2018) investigates how competition affects firm‐initiated product development‐related press releases.…”

“…Prior studies show that managers may use the tone of press releases to achieve personal benefits (Arslan-Ayaydin et al, 2016) or mislead the market about firm fundamentals (Huang et al, 2013). However, with the exceptions of Merkley (2013), Cao et al (2018) and Ma (2019), prior research mainly focuses on earnings press releases and has not examined large samples of disclosures about firms' actual activities. Merkley (2013) collects narrative R&D disclosures in 10-K reports and shows that managers adjust R&D disclosures based on earnings performance to provide relevant information.…”