How do investors perceive high synchronous earnings? Evidence from unexplained volume on earnings announcement days

Abstract

In this study, we investigate the implications of earnings synchronicity on investor opinion divergence. We document a positive relationship between earnings synchronicity and unexplained volume on announcement days, a proxy for investors' opinion divergence, suggesting that investors have more divergent beliefs for high synchronous earnings which convey little firm-specific information. Increase in the investor opinion divergence for high synchronous earnings could be interpreted as decrease in the quality of information environment. To corroborate this interpretation, we condition the association of earnings synchronicity with unexplained volume on the occurrence of management earnings forecasts, a proxy for complementary firm-specific information source. We find that the effect of earnings synchronicity on the unexplained volume is attenuated for firms issuing management earnings forecasts. This implies that a complementary information source could mitigate differential beliefs or interpretation on earnings among investors.