Impact Of Earnings Announcements On Changes In Investors' Beliefs: Evidence From The People's Republic Of China

This study examines whether corporate earnings announcements affect investors' beliefs about future earnings using a sample of companies in the People's Republic of China. Revisions in financial analysts' consensus forecasts are used as a proxy for the change in the aggregate belief of investors in the market. Changes in the analysts' forecasts dispersion are used to measure the degree of convergence or divergence of the market's belief after the earnings announcements. Results show that both forecast revisions and changes in forecast dispersion are significantly and positively associated with the unexpected element in the earnings announcements. The results indicate that accounting earnings of Chinese companies contain information useful to the market and that the information is reflected in the analysts' subsequent forecasts of the companies' future earnings. The findings are also consistent with results from recent analytical studies, such as Kim and Verrecchia (1994), Barry and Jennings (1992) and Morse, Stephan and Stice (1991), that information disclosure may increase (rather than reduce) the disagreement among investors.