Traditionally it has been accepted that managers try to bury bad earnings reports by releasing them at three different times: after trading hours have closed for the day, on days when many other firms are reporting and on Fridays. The theory behind reporting in this way is that research has shown that the market is paying less attention during these times.We can only process so much information at a time so it is easy to see why reporting at the same time as others is an effective strategy to bury disappointing earnings. After the market closes, analysts and traders may be unwinding from the day. While on Friday, perhaps traders are looking towards the weekend, which is one explanation why trading volume tends to be down on that day.
In their paper, "Market (In)Attention and Earnings Announcement Timing", deHaan, Shevlin and Thornock find that the market pays less attention after trading hours and during times when several firms are reporting. In direct opposition to conventional thinking, however, they have found that the market pays as much, if not more attention on Friday. There are several reasons cited for this, including fewer earnings reports on Fridays and algo based trading does not fall prey to the distractions a Friday can cause.
If weekly earnings reports were to be divided evenly among the trading days, each day would get 20% of the total reports. While compiling their research, the authors found that 51.4% of the companies surveyed had a Friday announcement listed. However, over time many of those dates will change, leaving only a scant 7.6% of companies to release a quarterly earnings report on a Friday. By contrast, Monday, the lowest of the 4 remaining days is just under 15% of quarterly earnings release dates. In practical terms, this means that if a company releases a poor earnings report on a Friday there are fewer other companies to distract people.
While the authors did find that more poor earnings news were reported when managers believe investors are paying less attention, on Friday they found that it was due to personal assumptions rather than the actual attention of the market. Instead of burying the information on Fridays, the managers are actually highlighting it. Using the new information provided by the authors, savvy managers might highlight unexpectedly good earnings by releasing them on Friday, when the market is thought to be napping, but is actually wide awake.
Barry Star is CEO of Wall Street Horizon, a provider of extremely accurate and timely corporate event dates and information including earnings calendar dates, dividend dates, options expiration dates, splits, spinoffs and a wide variety of investor-related conferences.