Does Firm Life Cycle Stage Affect Investor Perceptions? Evidence from Earnings Announcement Reactions

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dc.contributor.authorFodor, Andyen
dc.contributor.authorBergsma Lovelace, Kelleyen
dc.contributor.authorSingal, Vijayen
dc.contributor.authorTayal, Jitendraen
dc.date.accessioned2023-03-14T12:01:58Zen
dc.date.available2023-03-14T12:01:58Zen
dc.date.issued2021-08-06en
dc.date.updated2023-03-13T19:18:55Zen
dc.description.abstractThis paper argues that firms in certain life stages may be more subjectively valued by individual investors, leading to an overoptimistic bias in stock prices that is subsequently corrected upon the release of earnings news. Using a cash flow-based life stage classification, introduction and decline stage companies exhibit three-day cumulative abnormal returns (CARs) around earnings announcements that are at least 112 bps lower than firms in growth, maturity, and shake-out stages. Specifically, introduction and decline stage stocks exhibit less positive reactions to positive earnings surprises and more negative reactions to negative earnings surprises relative to companies in other life stages. Lottery stocks’ excess returns around earnings announcements (Liu, Wang, Yu, and Zhao 2020) also vary based on firm life stage. Our findings suggest that individual investors’ overoptimistic expectations for introduction and decline stage stocks are met with disappointment when value-relevant earnings news is released. This study demonstrates that firm life stage has real implications for stock price reactions to earnings announcements in financial markets.en
dc.description.notesSource info: Review of Accounting Studies, forthcoming.en
dc.description.versionAccepted versionen
dc.format.mimetypeapplication/pdfen
dc.identifier.orcidSingal, Vijay [0000-0002-8140-6007]en
dc.identifier.urihttp://hdl.handle.net/10919/114097en
dc.language.isoenen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectEarnings announcementsen
dc.subjectfirm life stageen
dc.subjectlotteryen
dc.subjectreturnsen
dc.titleDoes Firm Life Cycle Stage Affect Investor Perceptions? Evidence from Earnings Announcement Reactionsen
dc.title.serialReview of Accounting Studiesen
dc.typeArticle - Refereeden
dc.type.dcmitypeTexten
pubs.organisational-group/Virginia Techen
pubs.organisational-group/Virginia Tech/Pamplin College of Businessen
pubs.organisational-group/Virginia Tech/Pamplin College of Business/Finance, Insurance, and Business Lawen
pubs.organisational-group/Virginia Tech/All T&R Facultyen
pubs.organisational-group/Virginia Tech/Pamplin College of Business/PCOB T&R Facultyen

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