Kazuhisa Otogawa
Kobe University
Abstract: I investigate the change in bid-ask spread around earnings announcements with large special charges. Using the unbalanced panel data of 274 Japanese firms that once at least announced earnings with special charges exceeding 10% of total assets during 1997-2001, I find that, as a whole, there are significant increases in bid-ask spreads at the time of earnings announcements and significant decreases during the period just after releasing earnings. I then find that the increases in spreads are more salient at the earnings announcements without large special charges, and that the decreases in spreads are more prominent just after earnings announcements with large special charges. A possible explanation is that if firms can defer to take restructurings and write-downs of impaired assets and only some traders can anticipate them in advance, the earnings announcements keeping out of large special charges might not be so helpful to diminish the information asymmetry among the market participants.
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