On the Market Reaction to Revenue and Earnings Surprises

This study extends Ertimur et al. (2003) and Jegadeesh and Livnat (2006a) by providing a contextual framework for the information content of revenue and earnings surprises. I find that the influence of earnings surprises (revenue surprises) on stock returns is lower (higher) in Ramp;D intensive companies. Also, market reaction to earnings surprises is lower in the fourth quarter, and to revenue surprises it is higher in industries with oligopolistic competition. A comprehensive analysis indicates that, in contrast to previous studies for the full sample, in several contexts market reaction to earnings surprises is not higher than to revenue surprises