Earnings Signals and Inter‐firm Information Transfers

Three potential determinants of inter‐firm information transfer at earnings announcement dates are examined. They are: (1) the correlation of the announcing and nonannouncing firms’ information signals, (2) the information contained in the announcing firm's signal, and (3) the pre‐announcement level of uncertainty for the nonannouncing firm. These determinants expand the scope of information transfer studies by (1) moving beyond standard industry definitions and (2) including a measure of the uncertainty related to the market's expectation for the forthcoming signal of the nonannouncer. The results suggest that these three determinants are jointly associated with the return movement of the nonannouncing firms.