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 ?
Utilizing multiple regressions, results indicate that when analyzing the total sample of 397 firms in the sample (buyback and non-buyback), cross-sectional cumulative abnormal returns (CAR) contain significantly positive information content in relation to earnings response coefficients (ERC).
Is the annual earnings response coefficient statistically significant in Brazil?
The purpose of this work is to provide the basic theoretical and a detailed review of the earnings response coefficient (ERC).
The effect of the default risk of debt on the earnings response coefficient.
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.
To test for a statistical difference in the magnitude of earnings response coefficients in the two samples using Equation (6), I use the model specification in Equation (7).
2] of the mining industry is much higher than other industries in their study examining cross-industry earnings response coefficients.
An additional measure of the importance of the event to a rival is the earnings response coefficient (ERC).
Teoh and Wong (1993) show a positive association between auditor brand name and the earnings response coefficient.
Because it is difficult to empirically control for such items, this other information may be partly responsible for the existing modest levels of explained variation in extant earnings response coefficient studies.
i,q,x] is the product of the absolute unexpected earnings (absolute surprise) as of day -x and an earnings response coefficient (ERC).