Stock price behavior around announcements of write-offs

Is it plausible that important corporate events such as write-offs, averaging around 20% of firms' market values, are associated with stock-price responses of less than 1%? We investigate this question by observing a lengthy period before and after the announcement date. We find, as suggested by previous studies, that price declines precede write-off announcements. We find what has not been found before: abnormal returns continue to decline after the announcement by as much as 21 % annually for a two-year period. This significant stock-price underperformance is also observed around subsequent earnings announcements, and is robust to various riskadjustment techniques. Our findings are important on two counts: they (1) suggest that disclosure standards may not be sufficient to allow market agents to understand the economic consequences of the write-offs, and (2) reveal a substantial mispricing, which is inconsistent with market efficiency. © 1998 Kluwer Academic Publishers,.