Strategic Release of Information on Friday: Evidence from Earnings Announcements∗

Do firms time the release of news in response to investor inattention? We consider news about earnings and analyze the reaction of investors to announcements on Friday and on other weekdays. The announcements have two main effects on stock returns. First, the short-term response to Friday earnings announcements is 20 percent smaller than the response on other days of the week. Second, the post-earnings drift is 70 percent larger for Friday announcements. These stylized facts suggest that weekends distract investor attention temporarily. Consistent with this interpretation, trading volume around announcement day increases 20 percent less for Friday than for non-Friday announcements. These facts support models of post-earning announcement drift based on underreaction to information due to cognitive constraints. We also show that firms appear to respond to investor distraction by releasing worse announcements on Friday. Friday releases are associated with a 25 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal stock return. Finally, we document a similar pattern of strategic behavior for political decisions. The US President is 25 percent less likely to sign on Friday legislation containing good news. ∗We thank John Campbell, David Card, Yonca Ertimur, John Graham, David Hirshleifer, Wei Jiang, Lawrence Katz, David Laibson, Owen Lamont, Ulrike Malmendier, Maria Nondorf, Matthew Rabin, Jeremy Stein, and Xiao-Jun Zhang and audiences at London Business School, University College (London), UC Berkeley, UI Urbana-Champaign, University of Zürich, at the Yale Conference on Behavioral Science, and at SITE 2004 (Psychology and Economics) for precious comments. Jessica Chan, Eric Fleekop, Richard Kim, Clarice Li, Ming Mai, Raymond Son, Matthew Stone, and Terry Yee helped collect the announcement dates from the newswires. Saurabh Bhargava provided excellent research assistance.