Earnings Announcements and Competing Information

We investigate whether competing information, primarily analyst reports, reduces the usefulness of earnings announcements. Our examination of this issue has two parts. First, we examine whether investors’ use of analyst reports, as measured by the absolute abnormal returns to these reports, substitutes for their use of earnings announcements. We find that market reactions to earnings announcements and analyst reports are positively related. This positive relation also characterizes subsequent period analyst reports relative to current period earnings announcements. Second, we test for changes in the absolute reactions to each type of disclosure over 1986-1995, and find that market reactions to both earnings announcements and analyst reports increased, in aggregate, over the sample period. As a whole, these results provide little or no empirical support for the view that the informativeness of earnings announcements is eroded by competing information in the form of analyst reports.