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Earnings Response Coefficient

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Earnings response coefficient
A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.
Earnings Response Coefficient
The relationship between a change in a company's stock price and any unusual statements in a company's earnings announcement. Unexpectedly high earnings can create a buying panic and while low earnings can create a selling panic. This can drive the stock price up or down. Arbitrageurs use the earnings response coefficient to estimate how much the price may change and make decisions on how to exploit the pricing inefficiency. See also: Capital Asset Pricing Model, Arbitrage.
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Wong, 1993, "Perceived Auditor Quality and the Earnings Response Coefficient," The Accounting Review, 68 (April), 346-366.
The effects of audit quality on loan interest rates for small and ... by Tsai, Hsuehchang; Hua, Mingshu / International Journal of Business
2005) found a negative relationship between non-audit services and the earnings response coefficient (a measure of investors' perception of earnings quality) but Skantz and Higgs (2006) observed a similar negative relationship only when NAS fees were abnormally high.
The value of 'cooling off': do stakeholders worry when firms hire ... by Daugherty, Brian; Dickins, Denise / Regulation
There is also a substantial related accounting literature that uses time-series methodology to address the potential determinants of earnings response coefficients.
The Information Content of Dividend and Capital Structure Policies by Koch, Paul D.; Shenoy, Catherine / Financial Management
 
 
 
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