The reaction of the capital market to the seasonal profit behavior of companies

Nowroozi, S.; Ranjbar, M.H.; Asadnia, J.

doi:10.22035/isih.2021.373

Document Type : Original Research Paper

Authors

¹ Department of Accounting, Faculty of Humanities, Islamic Azad University, Bandar Abbas Branch, Iran

² Assistant Professor, Department of Accounting and Financial Management, Faculty of Humanities, Bandar Abbas Branch, Islamic Azad University, Hormozgan, Iran

³ Visiting Professor, Qeshm International Campus, Islamic Azad University, Qeshm Branch, Hormozgan, Iran

https://doi.org/10.22035/isih.2021.373

Abstract

The aim of this study is to investigate the information content of quarterly earnings announcements of firms in Tehran Stock Exchange's information needs of stakeholders and investigate influential factors on it and then propose optimal model. To provide a measure of how much value-relevant information is provided at earnings releases, we calculate the adjusted R2 from a regression of calendar-year returns on returns in each of the four seven-day announcement “event windows” during the year. In order to investigate more, we investigate the factors affecting this information content. Therefore, the financial data of 106 firms for the period between the years 1385 to 1389 were analyzed. Results showed that announcement of quarterly earnings an average of 9 to 17 percent of total annual information that affect stock prices of companies and this indicates that the primary role of announcement of quarterly earnings for investors and other stakeholders is not to provide timely information, but it increase the reliability of other sources of information that issue timelier. Also other results of this study show that there are a significant positive relation between the information content of quarterly earnings announcements and some variables such as growth opportunities and quality and nature of earnings and a negative and significant relationship with the size, financial leverage and age of firm. Finally optimal model of research are propose in below:

Keywords

Main Subjects

Economics

References

Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6(2), 159. doi:10.2307/2490232

Ball, R., & Shivakumar, L. (2008). How Much New Information Is There in Earnings? Journal of Accounting Research, 46(5),975-1016. doi:10.1111/j.1475-679x.2008.00299.x

Ball, R., Sadka, G., & Sadka, R. (2009). Aggregate Earnings and Asset Prices. SSRN Electronic Journal, 47(5),1097-1133. doi:10.2139/ssrn.1915364

Bartov, E., Radhakrishnan, S., & Krinsky, I. (2000). Investor Sophistication and Patterns in Stock Returns after Earnings Announcements. The Accounting Review, 75(1), 43–63. doi:10.2308/accr.2000.75.1.43

Beaver, W. (1968). The Information Content of Annual Earnings Announcements. Journal of Accounting Research, 6, 67-92. doi:10.2307/2490070

Berens, M. (2010). The Asymmetry of Market Efficiency for Positive and Negative Earnings Surprises. SSRN Electronic Journal, 1-11. doi:10.2139/ssrn.1569619

Bird, R. G., Choi, D. F. S., & Yeung, D. (2011). Market Uncertainty and Sentiment, and the Post-Earnings Announcement Drift. SSRN Electronic Journal, 1-37. doi:10.2139/ssrn.1912195

Chan, K., Li, F., & Lin, T.-C. (2013). Post-Split Drift and Post-Earnings Announcement Drift: One Anomaly or Two? SSRN Electronic Journal, doi:10.2139/ssrn.2329740

Charles, C., Schmid, M.M., & Meyerinck, F.V. (2017). Peer Pressure in Corporate Earnings Management. Paris December 2017 Finance Meeting EUROFIDAI – AFFI, Available at SSRN: https://ssrn.com/abstract=2958181

Chen, L., & Zhao, X. S. (2008). Return Decomposition. SSRN Electronic Journal,22(12), 5213-5249 doi:10.2139/ssrn.762601

Dichev, I., Graham, J., Harvey, C. R., & Rajgopal, S. (2016). The Misrepresentation of Earnings. Financial Analysts Journal, 72(1), 22–35. doi:10.2469/faj.v72.n1.4

Francis, J., Lafond, R., Olsson, P., & Schipper, K. (2007). Information Uncertainty and Post-Earnings-Announcement-Drift. Journal of Business Finance & Accounting, 34(3-4), 403–433. doi:10.1111/j.1468-5957.2007.02030.x

Ghaemi, M., Bayat, A., Skandarlee, T. (2011). The Information Content of Quarterly Earnings Announcements. Accounting and Auditing Review, 18(65), 115-130.

Gibson, R., Sohn, M., & Tanner, C. (2017). Investing in Managerial Honesty. SSRN Electronic Journal, 1-79. doi:10.2139/ssrn.2912795

Gurun, U. G., Stoffman, N., & Yonker, S. E. (2015). Trust Busting: The Effect of Fraud on Investor Behavior. SSRN Electronic Journal, Kelley School of Business Research Paper No. 15-70, 1-57. doi:10.2139/ssrn.2664307

Mehrazeen, A., Masihabadi, A., dehnavi, M. (2012). Financial Information Transparency and Informativeness Content of Earnings. Journal of Knowledge Accounting, 3(8), 113-130. doi: 10.22103/jak.2012.6

Moosavi, S., Alavi Tabari, S. (2011). Information Content of Net Earnings and the Stock Price Adjustment. Empirical Research in Accounting, 1(1), 7-19. doi: 10.22051/jera.2013.522

NG, J., Rusticus, T. O., & Verdi, R. S. (2007). Implications of Transaction Costs for the Post-Earnings-Announcement Drift. SSRN Electronic Journal, 46(3),661-696. doi:10.2139/ssrn.899902

PARSONS, C. A., SULAEMAN, J., & TITMAN, S. (2018). The Geography of Financial Misconduct. The Journal of Finance, 73(5), 2087–2137. doi:10.1111/jofi.12704

Pevzner, M., Xie, F., & Xin, X. (2012). When Firms Talk, Do Investors Listen? The Role of Trust in Stock Market Reactions to Corporate Earnings Announcements. SSRN Electronic Journal, 117(1),190-223. doi:10.2139/ssrn.2144835

Roychowdhury, S., & Sletten, E. (2012). Voluntary Disclosure Incentives and Earnings Informativeness. SSRN Electronic Journal, 1-57. doi:10.2139/ssrn.1220942

Sadka, G., & Sadka, R. (2008). Predictability and the Earnings-Returns Relation. SSRN Electronic Journal,94(1),87-106 doi:10.2139/ssrn.967675

Skinner, D. J. (1995). Earnings Disclosures and Stockholder Lawsuits. SSRN Electronic Journal, 1-46. doi:10.2139/ssrn.55489

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Interdisciplinary Studies in the Humanities

The reaction of the capital market to the seasonal profit behavior of companies

References

References

Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6(2), 159. doi:10.2307/2490232

Ball, R., & Shivakumar, L. (2008). How Much New Information Is There in Earnings? Journal of Accounting Research, 46(5),975-1016. doi:10.1111/j.1475-679x.2008.00299.x

Ball, R., Sadka, G., & Sadka, R. (2009). Aggregate Earnings and Asset Prices. SSRN Electronic Journal, 47(5),1097-1133. doi:10.2139/ssrn.1915364

Bartov, E., Radhakrishnan, S., & Krinsky, I. (2000). Investor Sophistication and Patterns in Stock Returns after Earnings Announcements. The Accounting Review, 75(1), 43–63. doi:10.2308/accr.2000.75.1.43

Beaver, W. (1968). The Information Content of Annual Earnings Announcements. Journal of Accounting Research, 6, 67-92. doi:10.2307/2490070

Berens, M. (2010). The Asymmetry of Market Efficiency for Positive and Negative Earnings Surprises. SSRN Electronic Journal, 1-11. doi:10.2139/ssrn.1569619

Bird, R. G., Choi, D. F. S., & Yeung, D. (2011). Market Uncertainty and Sentiment, and the Post-Earnings Announcement Drift. SSRN Electronic Journal, 1-37. doi:10.2139/ssrn.1912195

Chan, K., Li, F., & Lin, T.-C. (2013). Post-Split Drift and Post-Earnings Announcement Drift: One Anomaly or Two? SSRN Electronic Journal, doi:10.2139/ssrn.2329740

Charles, C., Schmid, M.M., & Meyerinck, F.V. (2017). Peer Pressure in Corporate Earnings Management. Paris December 2017 Finance Meeting EUROFIDAI – AFFI, Available at SSRN: https://ssrn.com/abstract=2958181

Chen, L., & Zhao, X. S. (2008). Return Decomposition. SSRN Electronic Journal,22(12), 5213-5249 doi:10.2139/ssrn.762601

Dichev, I., Graham, J., Harvey, C. R., & Rajgopal, S. (2016). The Misrepresentation of Earnings. Financial Analysts Journal, 72(1), 22–35. doi:10.2469/faj.v72.n1.4

Francis, J., Lafond, R., Olsson, P., & Schipper, K. (2007). Information Uncertainty and Post-Earnings-Announcement-Drift. Journal of Business Finance & Accounting, 34(3-4), 403–433. doi:10.1111/j.1468-5957.2007.02030.x

Ghaemi, M., Bayat, A., Skandarlee, T. (2011). The Information Content of Quarterly Earnings Announcements. Accounting and Auditing Review, 18(65), 115-130.

Gibson, R., Sohn, M., & Tanner, C. (2017). Investing in Managerial Honesty. SSRN Electronic Journal, 1-79. doi:10.2139/ssrn.2912795

Gurun, U. G., Stoffman, N., & Yonker, S. E. (2015). Trust Busting: The Effect of Fraud on Investor Behavior. SSRN Electronic Journal, Kelley School of Business Research Paper No. 15-70, 1-57. doi:10.2139/ssrn.2664307

Mehrazeen, A., Masihabadi, A., dehnavi, M. (2012). Financial Information Transparency and Informativeness Content of Earnings. Journal of Knowledge Accounting, 3(8), 113-130. doi: 10.22103/jak.2012.6

Moosavi, S., Alavi Tabari, S. (2011). Information Content of Net Earnings and the Stock Price Adjustment. Empirical Research in Accounting, 1(1), 7-19. doi: 10.22051/jera.2013.522

NG, J., Rusticus, T. O., & Verdi, R. S. (2007). Implications of Transaction Costs for the Post-Earnings-Announcement Drift. SSRN Electronic Journal, 46(3),661-696. doi:10.2139/ssrn.899902

PARSONS, C. A., SULAEMAN, J., & TITMAN, S. (2018). The Geography of Financial Misconduct. The Journal of Finance, 73(5), 2087–2137. doi:10.1111/jofi.12704

Pevzner, M., Xie, F., & Xin, X. (2012). When Firms Talk, Do Investors Listen? The Role of Trust in Stock Market Reactions to Corporate Earnings Announcements. SSRN Electronic Journal, 117(1),190-223. doi:10.2139/ssrn.2144835

Roychowdhury, S., & Sletten, E. (2012). Voluntary Disclosure Incentives and Earnings Informativeness. SSRN Electronic Journal, 1-57. doi:10.2139/ssrn.1220942

Sadka, G., & Sadka, R. (2008). Predictability and the Earnings-Returns Relation. SSRN Electronic Journal,94(1),87-106 doi:10.2139/ssrn.967675

Skinner, D. J. (1995). Earnings Disclosures and Stockholder Lawsuits. SSRN Electronic Journal, 1-46. doi:10.2139/ssrn.55489

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Volume 13, Issue 3 - Serial Number 51
June 2021
Pages 157-184

References

Send comment about this article

Volume 13, Issue 3 - Serial Number 51June 2021Pages 157-184

Volume 13, Issue 3 - Serial Number 51
June 2021
Pages 157-184