Firm Complexity and Post-Earnings-Announcement Drift

Barinov, Alexander and Park, Shawn Saeyeul and Yildizhan, Celim (2014): Firm Complexity and Post-Earnings-Announcement Drift.

Abstract

The paper shows that the post earnings announcement drift is stronger for conglomerates, despite conglomerates being larger, more liquid, and more actively researched by investors. We attribute this finding to slower information processing about complex firms and show that the post earnings announcement drift is positively related to measures of conglomerate complexity. We also find that the post earnings announcement drift is stronger for new conglomerates than it is for existing conglomerates and that investors are most confused about complicated firms that expand from within rather than firms that diversify into new business segments via mergers and acquisitions.

• Item Type: MPRA Paper
• Language: English
• Keywords: post-earnings-announcement drift, conglomerates, mispricing, limits to arbitrage, complicated firms, Celim Yildizhan, Alexander Barinov, Shawn Saeyeul Park
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M40 - General

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