The Effect of Earnings Announcement Timing on Liquidity

Abstract

The proportion of after-market-close (AMC) earnings announcements has recently increased to more than 40% of the total number of earnings announcements (Berkman & Truong, 2009). Doyle and Magilke (2009) conclude that managers do not announce AMC to hide bad news; however, they do not directly address other explanations for the AMC announcement increase. Thus, the cause(s) remains an open question. Interestingly, the increase in AMC earnings announcements has coincided with the emergence of a 24/7 news environment and a marked increase in noise trading. We posit that managers are increasingly announcing earnings AMC instead of before-market-open (BMO) to take advantage of this increased noise trading—thereby increasing the liquidity of their stock. We show evidence, after controlling for other factors, that announcing AMC instead of BMO increases liquidity. In addition, the relationship between AMC and liquidity is increasing in analysts’ coverage—consistent with the view that AMC announcements generate the largest increase in liquidity for those stocks with high investor interest.