The effect of earnings surprises on information asymmetry

Stephen Brown, Stephen A. Hillegeist, Kin Lo

Research output: Contribution to journalArticlepeer-review

78 Scopus citations


We examine the effect of earnings surprises on changes in information asymmetry. We hypothesize and find that asymmetry is lower (higher) in the quarter following positive (negative) earnings surprises compared to firms that meet the consensus analyst earnings forecast. The relations between earnings surprises and information asymmetry are stronger when the surprises are more likely to capture investors' attention. Examining the source of these changes, we show that decreased information search activities is the most important factor for asymmetry declining after positive surprises; for negative surprises, decreased uninformed trading plays a dominant role increasing asymmetry. Crown

Original languageEnglish (US)
Pages (from-to)208-225
Number of pages18
JournalJournal of Accounting and Economics
Issue number3
StatePublished - Jun 2009
Externally publishedYes


  • Earnings surprises
  • Information asymmetry
  • Investor recognition hypothesis

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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