Teh Hooi Ling writes in The Business Times that "Profit warnings hurt big boys less". Excerpt from the article:
Profit warnings are particularly bad news for small companies, but not necessarily so for big ones. Based on data in the last three years, big-cap counters which have issued profit warnings, on average went back to their pre-warning share price within five or six months, and ended up out-performing the STI by 5 percentage points. But few of the small stocks recovered to their pre-warning days within that same time frame. By the end of six months, they had fallen an average 19 per cent and had underperformed the UOB Sesdaq Index by 27 percentage points.
The article also mentions a study by George Bulkley and Renata Herrerias from the University of Exeter, UK, that had come up with similar findings. The two studied over 2,000 profit warnings by companies in the US between 1998 and 2000 and found that the impact of profit warnings is very much greater for small firms than large.
In addition, they found that companies that gave qualitative statements without any numbers suffered bigger price falls than those that gave quantitative warnings, possibly because the former implies potentially bigger disappointments.
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