Market Reactions to Zero or Small Positive Sales Surprise

Jiameng Ma (School of Management, Shanghai University,Shanghai, 200444, China)

Article ID: 1100



This paper studies how the stock market reacts to zero or small positive sales surprise. Using data from firms listed in the U.S., the paper shows that before 2003 investors react more to positive earnings surprises while after 2003 they react more to the opposite. When sales forecasts are first reported, investors believe in sales numbers and favor firms that meet or beat sales forecasts, but after 2003, investors grow skeptical, realize the possibility of sales management and trust more in negative sales surprises. One thing in common for both two samples is that Sales Response Coefficients of extreme sales surprises are smaller than those of moderate sales surprises.


Sales surprise; Market reaction; Sales response coefficient

Full Text:



[1] Bartov, E., D. Givoly, and C. Hayn. The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics, 2002, 33 (2): 173–204.

[2] Kasznik, R., and M. McNichols. Does meeting earnings expectations matter? Evidence from analyst forecast revisions and share prices. Journal of Accounting Research, 2002, 40 (3): 727–59.

[3] Lopez, T., and L. Rees. The effect of beating and missing analysts’ forecasts on the information content of unexpected earnings. Journal of Accounting, Auditing and Finance , 2002, 17 (2): 155–84.

[4] Degorge, F., J. Patel, R. Zeckhauser. Earnings Management to Exceed Thresholds. Journal of Business, 1999, 72: 1–33.

[5] Burgstahler, D., I. Dichev.. Earnings Management to Avoid Earnings Decreases and Losses. Journal of Accounting & Economics, 1997, 24: 99–126.

[6] Keung, E., Z. Lin, M. Shih. “Does the Stock Market See a Zero or Small Positive Earnings Surprise as a Red Flag?” Journal of Accounting Research, 2010,48: 91–121.

[7] Rees, L. K. Sivaramakrishnan. The effect of meeting or beating revenue forecasts on the association between quarterly returns and earnings forecast errors. Contemporary Accounting Research,2007, 24 (1): 259-90.

[8] Brown, L., M. Caylor. A Temporal Analysis of Quarterly Earnings Threshold: Propensity and Valuation Consequences. The Accounting Review, 2005, 80: 423–40.

[9] Beaver, W., McNichols, M., Nelson, K.. An alternative interpretation of the discontinuity in earnings distributions. Review of Accounting Studies, 2007, 12, 525–556.

[10] Dechow, P.M., Richardson, S.A., Tuna, I.. Why are earnings kinky? Review of Accounting Studies, 2003, 8, 355–384.

[11] Easton, P., M. W. Zmijewski.. Cross-Sectional Variation in the Stock Market Responses to the Announcement of Accounting Earnings. Journal of Accounting and Economics, 1989, 11: 117–41.

[12] Defond,M. L., C.W. Park.. The Reversal of Abnormal Accruals and the Market Valuation of Earnings Surprises. The Accounting Review, 2001, 76: 375–404.

[13] Burgstahler, D., M. Eames.. Management of Earnings and Analysts’ Forecasts to Achieve Zero and Small Positive Earnings Surprises. Journal of Business Finance & Accounting, 2006, 33: 633–52.


  • There are currently no refbacks.
Copyright © 2019 Jiameng Ma

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.