Status and surprises: Causes of reaction to new information about firm performance

A wide range of evidence confirms that in markets characterized by high informational uncertainty a firm's status position is a signal of that firm's quality, and that resource holders are more likely to select and invest in high status firms. The central question of my dissertation is if status as a signal of the quality of the firm remains relevant when new information about the firm's performance becomes public, and if so, how does a firm's status affect market reaction to new information.;I advance two theoretical models for jointly analyzing status and information. Although related, they answer two distinct questions about the role of status in processing two types of information: data about the actual performance of the firm and voluntary information about a firm's future performance. I test the models by analyzing two phenomena in the stock market.;First, I analyze the reaction to earnings announcements released by public firms at the end of the financial periods. I provide evidence that status magnifies the reaction to surprises by showing that the return on the stock of high status firms which deliver negative (positive) surprises is lower (higher) than the return on the stock of lower status firms which deliver similar results.;Second, I analyze the role of status in interpreting the meaning of voluntary earnings guidance. I provide evidence that, compared to low status firms, high status firms which do not offer guidance do not receive any sanction, but that middle status firms without earnings guidance receive less analysts coverage in the next year. I also show that the return on the stock of the firm is the lowest (largest) for high status firms which do not offer earnings guidance and turn negative (positive) surprises. For middle status firms with positive surprises the return is lower than for their peers which offer guidance and turn positive earnings surprises.