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Investor skepticism and the incremental effects of small positive sales surprises

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  • Shih, Michael

Abstract

Prior research suggests that investors see a small positive earnings surprise as a warning sign indicating a higher chance of creative accounting. This study finds that investors see a small positive sales surprise as another warning sign of manipulation. I compare the coefficient in the regression of abnormal stock returns on sales surprise (while controlling for earnings surprise) across subsamples of firms. The coefficient is lower for firms with small positive sales surprises than firms with sales surprises in any other range. I also find that while a positive sales surprise is generally regarded as good news, a small positive sales surprise has no significant effect on abnormal stock returns among firms reporting a small positive earnings surprise.

Suggested Citation

  • Shih, Michael, 2019. "Investor skepticism and the incremental effects of small positive sales surprises," Journal of Economics and Business, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:jebusi:v:106:y:2019:i:c:s0148619518302522
    DOI: 10.1016/j.jeconbus.2019.105847
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    References listed on IDEAS

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    1. Edmund Keung & Zhi‐Xing Lin & Michael Shih, 2010. "Does the Stock Market See a Zero or Small Positive Earnings Surprise as a Red Flag?," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 91-121, March.
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    Cited by:

    1. Qazi Ghulam Mustafa Qureshi & Yves Mard & François Aubert, 2022. "Effects of earnings management on firms' marketadjusted return," Post-Print hal-04266643, HAL.

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