Asymmetric Timeliness and Delayed Recognition of Bad News
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This article examines whether the asymmetric timeliness measure captures delayed recognition of bad news and in which manner this delayed recognition occurs. I find that negative earnings changes of firms with high asymmetric timeliness have significant predictive power for future earnings changes of low-asymmetric-timeliness firms in the same industry. In contrast, the negative earnings changes of firms with low asymmetric timeliness do not have predictive power for future earnings changes of high-asymmetric-timeliness firms in the same industry. Moreover, neither type of firm has predictive power for the other group when earnings changes are positive. This result suggests that high-asymmetric-timeliness firms recognize the effects of a common negative shock before low-asymmetric-timeliness firms. Further, low-asymmetric-timeliness firms have more frequent and smaller negative earnings changes, suggesting that the eventual recognition of negative news “trickles out” as opposed to being recognized in an “earnings bath.”
Abstract
This article examines whether the asymmetric timeliness measure captures delayed recognition of bad news and in which manner this delayed recognition occurs. I find that negative earnings changes of firms with high asymmetric timeliness have significant predictive power for future earnings changes of low-asymmetric-timeliness firms in the same industry. In contrast, the negative earnings changes of firms with low asymmetric timeliness do not have predictive power for future earnings changes of high-asymmetric-timeliness firms in the same industry. Moreover, neither type of firm has predictive power for the other group when earnings changes are positive. This result suggests that high-asymmetric-timeliness firms recognize the effects of a common negative shock before low-asymmetric-timeliness firms. Further, low-asymmetric-timeliness firms have more frequent and smaller negative earnings changes, suggesting that the eventual recognition of negative news “trickles out” as opposed to being recognized in an “earnings bath.”
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