Title: Valuation Convexity and the Pricing of Earnings News: Evidence on Delayed Information Integration

Speaker: Guochang Zhang, Professor, The University of Hong Kong

Time: 10:00-11:30, Oct 28th, 2026 (Wednesday)

Venue: Room 706, Mingde Business Building (Zhongguancun Campus)

Language: Chinese & English

ABSTRACT:

Blankespoor, de Haan, and Marinovic (2020) distinguish among awareness, acquisition, and integration in information processing. We examine how frictions in integrating earnings news affect market efficiency. Guided by real-options-based valuation, we predict that equity value is a convex function of earnings, with convexity varying by firms’ investment opportunities. Using quarterly earnings announcements for U.S. firms from 1980 to 2022, we find that investors respond promptly to the direction and magnitude of earnings news, consistent with efficient awareness and acquisition. However, initial price reactions fail to reflect cross-sectional differences in convexity, suggesting difficulty in integrating earnings news through nonlinear valuation mappings. Earnings-based price adjustments gradually converge toward theoretical benchmarks, generating predictable subsequent returns. Integration is faster in richer information environments: larger firms, less busy announcement days, greater analyst coverage, and higher institutional ownership. Overall, frictions in integrating earnings signals arising from nonlinear real-options effects are an important source of market inefficiency.

SHORT BIOGRAPHY:

Guochang Zhang is Chung Hon-Dak Professor in Accounting and former Area Head of Accounting and Law at the University of Hong Kong. He previously held academic positions at the Hong Kong University of Science and Technology and The University of Waterloo, Canada. He received a Bachelor degree (Engineering) from Shanghai Jiaotong University, and an MSc (Accounting) and a PhD (Finance) from the University of British Columbia. He has published papers in top academic journals including The Accounting Review, Journal of Accounting and Economics, Journal of Accounting Research, Contemporary Accounting Research, Review of Accounting Studies, and Management Science. His monograph “Accounting Information and Equity Valuation: Theory, Evidence, and Applications” has been used as teaching materials for doctoral and master programs and executive training. He has served as an Associate Editor of European Accounting Review, and was a member of the Financial Reporting Standards Committee of the Hong Kong Institute of Certified Public Accountants. He is a fellow of Accounting and Economics Society.