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.
References in periodicals archive ?
Pincus (2000), Internal versus external equity funding sources and earnings response coefficients.
Permanent versus transitory components of annual earnings and estimation error in earnings response coefficients.
The results showed the increased ability of the price and return models to explain better earnings-return relationship by providing highly significant earnings response coefficients.
The effects of backdating on earnings response coefficients.
Kothari, 1989, "An Analysis of Intertemporal and Cross-Sectional Determinants of Earnings Response Coefficients," Journal of Accounting and Economics 11, 143-181.
2005 in the US, and Chen, Chen, and Su, 2001 in China) all regression results in Table 3 show that the earnings response coefficients (ERC), relating stock returns to the level and change in earnings, are positive and significant.
Based on nonaudit fees from 1978-80, the evidence indicates that smaller earnings response coefficients are associated with higher auditor provided nonaudit services.
We expect that, if auditors' industry specialization results in greater audit quality, industry specialization would be negatively associated with clients' discretionary accruals and positively associated with clients' earnings response coefficients.
Inter-temporal decline in earnings response coefficients.
Next, in order to test for a statistical difference in the magnitude of the earnings response coefficients in the two groups of firms, I introduce a dummy variable that represents the level of economic development (i.
Overall, the results indicate that, consistent with Freeman and Tse (1992), earnings response coefficients are decreasing in the magnitude of earnings surprise.