2020/01/28 by LAUREN COHEN, Lauren Cohen, CHRISTOPHER MALLOY +3 · 376 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Accounting #Auditing, Earnings Management, Governance #Basis point #Business #Corporate Finance and Governance #Earnings #Economics #Finance #Financial Markets and Investment Strategies #Financial economics #Interest rate #Monetary economics #Portfolio #Profitability index
paper · doi:10.1111/jofi.12885
published in The Journal of Finance 75(3), 1371-1415 (Wiley)
openalex publication_date 2020/01/28 · openalex created_date 2022/05/12 · openalex updated_date 2026/08/04
ABSTRACT Using the complete history of regular quarterly and annual filings by U.S. corporations, we show that changes to the language and construction of financial reports have strong implications for firms’ future returns and operations. A portfolio that shorts “changers” and buys “nonchangers” earns up to 188 basis points per month in alpha (over 22% per year) in the future. Moreover, changes to 10‐Ks predict future earnings, profitability, future news announcements, and even future firm‐level bankruptcies. Unlike typical underreaction patterns, we find no announcement effect, suggesting that investors are inattentive to these simple changes across the universe of public firms.