Building upon recent development in the literature, which has shown that earnings
persistence is not only firm-specific but also time-varying (Chen, 2013), I hypothesize that
earnings persistence declines before the break of earnings strings. I argue that, perceiving the
declining earnings persistence, investors could anticipate breaks of earnings strings and their
reactions to earnings growth might not be favourable, even though the earnings momentum
continues. When breaks of earnings strings finally occur, investors are probably more surprised
by firms who have had high earnings persistence before the break; therefore, the negative stock
returns around the announcement of breaks are primarily driven by these firms.