Corporate governance, market conditions and investors' reaction to information signals
We examine and compare the extent to which the reaction of investors to earnings announcements is influenced by a firm's governance profile and prevailing market conditions. We find that firms with better governance characteristics experience a larger initial reaction to both good and bad earni...
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Published in | Australian journal of management Vol. 48; no. 1; pp. 38 - 66 |
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Main Authors | , , , |
Format | Journal Article |
Language | English |
Published |
Kensington, NSW
SAGE Publications
01.02.2023
Sage Publications Ltd |
Subjects | |
Online Access | Get full text |
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Summary: | We examine and compare the extent to which the reaction of investors to earnings announcements is influenced by a firm's governance profile and prevailing market conditions. We find that firms with better governance characteristics experience a larger initial reaction to both good and bad earnings announcements regardless of the prevailing sentiment and uncertainty conditions. However, the influence of governance is constrained to the announcement period. We demonstrate that changes in market uncertainty and/or investor sentiment are related to the post-earnings announcement drift. We also find that a major channel through which greater corporate governance influences the market response to unexpected earnings news is by lowering information uncertainty and so providing greater clarity of the implication of the news for firm value. Finally, we establish that two types of uncertainties (market and information) have very different influence on investor's response to information signals. |
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Bibliography: | Australian Journal of Management, Vol. 48, No. 1, Feb 2023, 38-66 Informit, Melbourne (Vic) |
ISSN: | 0312-8962 1327-2020 |
DOI: | 10.1177/03128962221096492 |