We investigate how market reactions to earnings news differ between firms with high and low intangible capital in the U.S. from 1974 to 2017. We expect investors to have difficulty in processing information on earnings news for firms with high intangible capital, leading to a larger price response to the earnings announcement. Measuring total intangible capital as the accumulated sum of both externally-purchased and internally-created intangible assets, we find results supporting that both immediate and delayed market reactions to earnings news are larger for high-intangible firms. The spread of the 2-day announcement-period (60-day post-announcement-period) cumulative abnormal returns between firms in the top and bottom deciles of intangible capital is 1.37% (2.22%) for earnings surprise and -1.37% (-1.29%) for earnings shock. We find similar results in the multivariate regressions and four-factor alphas. We also find that this effect is more substantial for small, low-turnover, and high-idiosyncratic volatility firms, suggesting that limited attention causes larger market reactions to earnings news for high-intangible firms.​

Keywords: Intangible capital, Earnings announcement, PEAD, Limited attention, Delayed reaction