Why Should We Like Firms that Voluntarily Disclose? Evidence from Profit Warning Firms

Abstract

The extant literature shows a significant negative stock market reaction to a large sample of profit warnings. In this study, the author compares the long-term stock market and operating performance of warning firms with non-warning matching firms. Not surprisingly, warning firms have lower stock performance in the first six months after the warning. Conversely, they have better stock performance from six months to two years after the warning and better operating performance from one year to four years after the warning. The study finds significant improvement in operating performance to be consistent with the general pattern of shareholder returns.