Giving context to accounting numbers: The role of news coverage

摘要

Accounting numbers such as earnings per share are an important information source that conveys the value of firms. Previous studies on the return-earnings relation have confirmed that stock prices react to the information content in accounting numbers. However, other information sources such as financial news may also contain value-relevant information and affect investors' reaction to earnings announcements. We quantify news coverage about S&P 500 companies in the Wall Street Journal (WSJ) before earnings announcements and model its interaction with the return-earnings relation. Our empirical results show that news coverage decreases the information content of unexpected earnings and thus leads to a lower earnings response coefficient (ERC) for firms with higher news coverage. Statistically significant interaction between news coverage and unexpected earnings was observed. News coverage does not impact cumulated abnormal returns directly. We further document that this finding is not driven by firm size. The results suggest that financial news may play an important role in conveying value-related information to the markets.