Does firm life cycle stage affect investor perceptions? Evidence from earnings announcement reactions

This paper argues that firms in certain life cycle stages may be more subjectively valued by individual investors, leading to an optimistic bias stock prices is subsequently corrected upon the release of earnings news. Using a cash flow-based stage classification, introduction and decline companies exhibit three-day cumulative abnormal returns (CARs) around announcements are at least 112 bps lower than growth, maturity, shake-out stages. Specifically, stocks less positive reactions surprises negative relative other Lottery stocks’ excess (Liu et al. Journal Financial Economics 138: 789–817, 2020) also vary based on firm stage. Our findings suggest investors’ expectations for met with disappointment when value-relevant news released. study demonstrates has real implications price announcements.