Dollars and Jens
Monday, October 04, 2004
Leaving Early for the Weekend
It's conventional wisdom that companies and politicians prefer to release bad news on Fridays, when their audience is distracted by the weekend. A new paper confirms this (link from Bainbridge):
We compare the release of earnings on Friday to other weekdays. The announcements have three main effects on stock returns. First, the next-day response to Friday earnings announcements is over 50 percent smaller than the response on other days of the week. Second, the same-day response to Friday announcements, instead, is of similar magnitude to the response on other weekdays. Third, the post-earnings announcement drift is 70 percent larger for Friday announcements. These facts suggest that weekends distract investor attention temporarily. Consistent with this interpretation, trading volume around announcement day increases 20 percent less for Friday than for non-Friday announcements. We then show that firms respond to investor distraction by releasing worse announcements on Friday. Friday announcements are associated with 25 percent higher probability of a negative earning surprise and a 50 basis points lower abnormal stock return.