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An Alternative Explanation of Accounting Anomalies: The Case of Post-earnings Announcement Drift
Alireza Daneshfar,
University of New Haven
Zabihollah(zabi) Rezaee, The University of Memphis
ABSTRACT. The existence of accounting-based trading anomalies is well documented, suggesting that information uncertainty, measured in terms of earnings quality, is an important factor in explaining anomalies of post-earnings announcements drift (PEAD), value-glamour and accruals strategies. We investigate whether the persistence of PEAD anomaly is associated with audit-related factors including audit-report date, type of audit opinion, and auditor independence and reputation because, first, prior research has not provided plausible explanations for continuation of the anomaly; second, evidence suggests auditors often issue their report the same day their client releases earnings announcements, and companies delay the market release of fourth-quarter earnings information until after the issuance of the report. The simultaneous release of earnings information and the issuance of audit reports may convey to investors the implied assurance that the released earnings information is fairly stated.
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