Responses in divergence of opinion to earnings announcements: evidence from American depository receipts

Fanglin Shen, Quantong Guo, Hongyan Liang, Zilong Liu

Research output: Contribution to journalArticlepeer-review


Purpose: The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price. Design/methodology/approach: The authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011. Findings: The authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns. Originality/value: This paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.

Original languageEnglish (US)
Pages (from-to)385-420
Number of pages36
JournalInternational Journal of Managerial Finance
Issue number2
StatePublished - Mar 28 2023


  • American depository receipts
  • Divergence of opinion
  • Earnings announcement
  • Miller (1977) hypothesis

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance


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