Essays on profit warnings

Financial regulations require publicly traded firms to disclose firm-specific information relating to their financial performance as well as forecasts of future prospects disclosed to anyone outside the firm. Profit warnings present important market information as to the recent past firm performance as well as a glimpse into the firm's future prospects. By implementing Regulation Fair Disclosure (FD) in October 2000, the Securities and Exchange Commission (SEC) attempted to change the information environment by reducing information asymmetry between analysts and the investing public. This dissertation examines the impact of Regulation (FD) as it relates to three specific areas. Essay One examines Regulation FD's impact on market reaction to profit warnings by U.S. firms and finds significant market reaction over a two-day announcement window. The analysis in this dissertation documents statistically significant changes in the extent of the market reaction in the pre- and post-Regulation FD periods. Evidence is also presented that indicates a significant reduction in information leakage (as measured by negative cumulative abnormal returns (CARs) in stock price for firms in the two-week period immediately prior to a profit warning. Essay Two focuses on American Depositary Receipts (ADRs) and examines differences in comparative market reaction (ADRs versus U.S. stocks) in the pre and post-Regulation FD periods. Essay Three tests the market reaction to profit warnings for commercial bank stocks in the pre- and post-Regulation FD periods with particular attention focused on the contagion effect. The empirical analysis in this dissertation seeks to answer the question of whether the implementation of Regulation FD successfully achieves the SEC's goal of reducing information asymmetry between analysts and investors.