Investor Sentiment, The Timing Of Management Earnings Forecasts And Stock Market Response

The influence of investor sentiment on stock price is a heated topic in the area of behavioral finance recently. Meanwhile the timing of earnings forecasts and its economic consequences are gaining attention among accounting scholars. But until now, few papers investigate the influences of investor sentiment on the macroeconomic level over disclosure strategies of earnings forecasts on the microeconomic level, and the economic consequences of the timing of earnings forecasts during different sentiment period.Based on a sample of the management earnings forecasts disclosed by A-share listed companies during a period from2005to2011, constructing investor sentiment index by principal components analysis, we investigate the influences of investor sentiment on the macroeconomic level over disclosure strategies of earnings forecasts on the microeconomic level, and the economic consequences of the timing of earnings forecasts during different sentiment period. We find that corporate managers tend to disclose bad news using timing strategies; and the disclosure timing strategy of bad news is implemented more frequently during low investor sentiment period than that during high investor sentiment period. We also find that the negative market response to bad news would be mitigated if the information is disclosed using timing strategies, and the mitigation would even be bigger when the whole situation occurred during low investor sentiment period.In this paper, we connect investor sentiment with the timing strategy of information disclosure, which enriches the related literature of information disclosure strategy, especially of earnings forcasts timing. The exsisting papers mainly discover the influence of investor sentiment on corporate financial strategies and stock earnings, while in this paper, we examin how investor sentiment affects asset pricing from the perspective of stock market response of earnings information, which enriches the related literature of investor sentiment and asset pricing. Besides, the findings of this paper can help regulators know more about companies’ information disclosure strategies during different investor sentiment periods, and provide theoretical foundations and empirical evidences for them to further develop the information disclosure system for listed companies of China’s stock market.