Oops, Our Earnings Were Indeed Preliminary

The market reacts to earnings surprises when firms report different earnings in SEC filings from earnings reported just a few weeks earlier in preliminary earnings announcements. This is a new finding. When SEC filings include material new information, investors incorporate this in pricing company shares. Market reactions are stronger in the case of downward earnings revisions than upward earnings revisions, but an inverse drift in abnormal returns occurs for upward earnings revisions after the SEC filing date. Finally, it is documented that security analysts revise their forecasts upon the preliminary earnings announcement, but ignore the new information in the SEC filings.