Investor partitioning of the components of value in corporate earnings announcements

Authors

  • John A. MacDonald Department of Economics and Finance, School of Business, Clarkson University, Potsdam, NY 13699, USA
  • David M. Smith Faculty of Finance, School of Business, University at Albany, SUNY, Albany, NY 12222, USA

DOI:

https://doi.org/10.1016/S1057-0810(99)00035-9

Keywords:

Earnings announcements, Scores, Primes, Asset pricing

Abstract

This study provides new insight into the market’s allocation of dividend-related and capital gains-based returns on common stock around earnings announcement surprises. To the extent that investors’ cash flow forecasts are revised as earnings surprises occur, Americus Trust prime and score returns reflect changes in respective future dividends and capital gains. About 70% of the value gain from positive surprises accrues in the capital gains (score) value adjustment, with expected dividends (primes) reflecting the remaining 30%. The relative proportion is greater in magnitude at the announcement of fiscal fourth quarter results when dividend changes are more likely to follow the quarter earnings announcement. © 1999 Elsevier Science Inc. All rights reserved.

Downloads

Published

1999-06-30

How to Cite

MacDonald, J. A., & Smith, D. M. (1999). Investor partitioning of the components of value in corporate earnings announcements. Financial Services Review, 8(2), 87–99. https://doi.org/10.1016/S1057-0810(99)00035-9

Issue

Vol. 8 No. 2 (1999): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1999 JAI Press Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.