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07-11-2017 | Original Research | Issue 2/2018

Review of Quantitative Finance and Accounting 2/2018

Corporate goodness and profit warnings

Journal:
Review of Quantitative Finance and Accounting > Issue 2/2018
Authors:
Ajit Dayanandan, Han Donker, John Nofsinger

Abstract

Is a firm that is known for positively engaging stakeholders expected to voluntarily disclose bad financial news? If it makes the announcement, does its corporate goodness help to mitigate the stock price reaction? We examine these issues using a sample of profit warnings, and a sample of firms with negative earnings surprises that did not warn. Firms that have positive corporate social responsibility ratings are more likely to provide earnings warnings than other firms. When they do provide a profit warning, the event negative abnormal returns are of significantly smaller magnitude than the returns of other firms providing warnings. This effect does not occur for social firms that decide not to warn. They suffer the same negative stock price impact on the earnings announcement day as other firms.

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