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Unexpected distractions and investor attention to corporate announcements

Author

Listed:
  • Doron Israeli

    (Interdisciplinary Center (IDC) Herzliya
    Nazarbayev University)

  • Ron Kasznik

    (Stanford University)

  • Suhas A. Sridharan

    (Emory University)

Abstract

We investigate how unexpected distractions affect investor reactions to corporate earnings announcements. We use a daily news pressure (DNP) index as a proxy for the presence of potential investor distraction. Since breaking news captured by this index is largely unpredictable and unrelated to investors’ valuation decisions, our research design offers a unique opportunity to examine investor attention in the absence of strategic timing of announcements by managers. Using overall trading volume and Google searches as measures of investor attention, we find that investors are susceptible to distractions in their reactions to earnings announcements. We further find that DNP measures a form of distraction that affects retail but not institutional investors. Furthermore, in contrast to prior research that employs predictable measures of distraction, we find that price reactions to earnings announcements are not affected by unexpected distractions. Our results reveal that unexpected distractions reduce the attention of retail investors to earning announcements but do not necessarily lead to observable pricing effects.

Suggested Citation

  • Doron Israeli & Ron Kasznik & Suhas A. Sridharan, 2022. "Unexpected distractions and investor attention to corporate announcements," Review of Accounting Studies, Springer, vol. 27(2), pages 477-518, June.
    • Handle: RePEc:spr:reaccs:v:27:y:2022:i:2:d:10.1007_s11142-021-09618-4
    DOI: 10.1007/s11142-021-09618-4
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    3. Zhang, Qianqian & Jiang, Chunzi & Liu, Baohua & Chan, Kam C., 2024. "Small but salient: Minority shareholders’ innovation attention in interactive online platforms and corporate innovation," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    4. Andrei, Daniel & Friedman, Henry & Ozel, N. Bugra, 2023. "Economic uncertainty and investor attention," Journal of Financial Economics, Elsevier, vol. 149(2), pages 179-217.

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    More about this item

    Keywords

    Investor attention; Earnings announcements; Retail trading; Distraction;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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