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Earnings Benchmarks and the Information Content of Quarterly Foreign Earnings of U.S. Multinational Companies


  • The authors thank Richard Levich (Co-Editor, e-mail:, two anonymous referees, and Bahram Soltani for helpful comments and suggestions. Also, the authors thank participants at the 2011 American Accounting Association National meeting and the 2011 American Accounting Association Southwest Region meeting for useful discussions. Further, they acknowledge excellent research assistance from Tan Cao, Phong Khuu, and Phuong Vu. Additionally, the authors acknowledge Thomson Reuters for I/B/E/S earnings data used in this study.


The meeting of earnings benchmarks is considered important for investors. The chief financial officers of U.S. companies state that the three most important earnings thresholds to meet are the earnings in the same quarter last year, the analysts' earnings forecast for the current quarter, and zero earnings. These earnings benchmarks have been defined in terms of total earnings. For U.S. multinational firms, total earnings consist primarily of domestic earnings and foreign earnings. We conduct an event study where we examine (1) the stock market reaction to meeting or beating quarterly domestic and foreign earnings benchmarks and (2) the market reaction to the changes in quarterly domestic and foreign earnings, while we control for meeting or beating the analysts' earnings forecast and the analysts' earnings forecast surprise. We find that the quarterly financial statement disclosure of domestic and foreign earnings under Statement of Financial Accounting Standards No. 131 supplies investors with valuable information that was not previously disseminated through financial analysts or other sources. The stock market reaction to meeting or beating foreign earnings from the same quarter in the prior year is stronger than the market reaction to meeting or beating domestic earnings from the same quarter in the prior year.