EVIDENCE ON NEGATIVE EARNINGS RESPONSE COEFFICIENTS

Empirical evidence is provided on negative earnings response coefficients. Predictions of positive and negative earnings response coefficients (ERC) are developed by reference to a simple, stylized 2-signal model. In particular, time series variance-covariance estimates of a firm's reported earnings per share and Value-Line's earnings per share forecasts are employed for identification of positive-negative ERC firm groups. Simple correlations, and multiple regressions during a hold-out period support the model's predictions.