Quantifying News Reports to Proxy “Other Information” in ERC Models

  • Kuo-Tay Chen
  • Jian-Shuen Lian
  • Yu-Ting Hsieh
Part of the Lecture Notes in Computer Science book series (LNCS, volume 5477)


Many previous studies have investigated how earning announcement affects stock price. They measure the effect by employing earning response coefficient (ERC) models. However, the traditional models did not explicitly consider textual information received by investors. Rather they simply referred to it as “other information”. However, investor’s exposure to textual information (e.g. news report) might have significant influence on how stock prices will respond to earning announcements. This study attempts to investigate whether earning surprises cause stock fluctuations and how the effect is influenced by news coverage prior to earning announcements. We find that: (1) earning surprise significantly affects stock price; (2) more news coverage tends to decrease the ERC; (3) positive earning surprises have higher influence on stock price; and (4) different combinations of news sentiment and earning surprise result in different ERC.


earning response coefficient (ERC) model textual information news coverage news sentiment 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  • Kuo-Tay Chen
    • 1
  • Jian-Shuen Lian
    • 1
  • Yu-Ting Hsieh
    • 1
  1. 1.Department of accounting College of ManagementNational Taiwan UniversityTaipeiTaiwan

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