Importance And Impact Of Earnings Announcement On Share Price: Analysis And Empirical Evidence

Identifying the exact date of earnings announcements

The overall assessment mainly focuses in deriving the impact of earnings report on share price performance of the company. In addition, the assessment focuses on detecting the abnormal returns, which is achieved by the company. Moreover, the importance or relevance of earnings announcement is effectively depicted in the report, which could allow investor to understanding the impact of announcements on share price. The valuation of abnormal returns, Steyx Squared and T-Test is being conducted to identify the calculation and position of the company to generate high return. Moreover, the impact of good announcement and bad announcement on shar price of the company is appropriately evaluated. Furthermore, the calculation will allow investor to investigate the wealth effects of earnings announcement made by firms. The use of slope, intercept, Steyx and Rsquared is used in detecting the abnormal returns and expected return of the 10 shares. 

Earnings announcement is detected to be the most viable information, which could depict the financial position of the company. In addition, financial performance of the company is identified with the help of announcement, which relatively depicts their actual financial condition. The investors use of fundamental and technical analysis to derive the valuation of their share price, which might help in detecting its actual share price (Marshall, Schroeder and Yohn 2017). According to IFRS, the companies mainly need to provide all the relevant details regarding the financial progress on all quarters. Moreover, with the whelp in earning announcement the investors can confirm the management’s forecasting. The earnings announcement is essential, as it portrays the path way, which has been adopted by the company to achieve sustainable growth. Lastly, companies by depicting the announcements can portray their operational capability to the investor, which might help in mentioning their operations.

The empirical evidence on effectiveness of earnings announcements on wealth are depicted as follows.

According to Ball and Shivakumar (2008), the relevant information presented in the earnings report are effectively depicted. The journal states the impact and significance of earning announcements, where all the new information is presented in the annual report. The earnings announcement evaluation in the journal indicates the financial performance, which could improve profits of the company. Therefore, the journal evaluates the performance of earnings announcement in improving shar price of the company.

According to MacKinlay (1997), the impact of announcement is relatively evaluated, which might help investors in generating high level of returns. Moreover, the author indicated the positive attribute of announcement, which helps in improving its share valuation. Furthermore, the author stated that announcement having positive market power could increase shar price of the organisation. The empirical research indicates the power of positive announcement, which could improve demand of shares among potential investors.

Sources of earnings announcements

According to Afego (2013), the impact of annual report announcements on stock market performance is evaluated. In addition, the journal sheds light on the impact of earnings announcement and how share price of the company increases due to rising financial position. The positive and adverse impact of financial announcement is effectively evaluated by the paper, which indicates the influence of announcement earnings on share price of the company. The journal evaluates the impact of share price from 20 days before and after the announcement. This relevantly depicts the actual change in share price of the company due to rise in its earnings.

Mlonzi, Kruger and Nthoesane (2011) indicates the duty of the company towards its shareholders and investor, which could increase their share price valuation. In addition, the researcher indicates the relation of financial performance and increment in share value, which is been conducted after the announcement. In addition, the researcher indicates substantial decline in share price, which is conducted after the announcement conducted by Nigerian companies. The study indicates negative impact of announcement in share price of the company, due to weak form of market efficiency. The journal mainly states the negative attributes of the announcement measure, which is been used by companies in Nigeria.

Eleke-Aboagye and Opoku (2013) stated that earnings announcement indicates the financial performance and share price movement of the company. Moreover, the research evaluated 21 days share price movement during and after the announcement, which could help in depicting effectiveness of the announcement. The results depicted in the research indicates that the price movement of the stock was according to the news of the announcement. Good news mainly increased share price of the company, while the decline in value is seen when bad announcement is conducted.

Su (2003) mentioned in the journal about the changes in share price of the company due to relevant announcements conducted in Chinese stock market. In addition, the journal indicates the achievement of abnormal returns, which is generated after the earnings announcements. Moreover, the journal also indicates that shareholder with the help in earnings announcement can increase their return from investment.

The relevant journals, depicted above mentions the positive and negative attributes of earnings announcements. In addition, the journal sheds light on the impact of earning announcements on share price valuation of the company. 

The methodology of the report indicates the relevant method of data collection, choice of estimation period, event window and data analysis. In addition, the methodology indicates relevant data collection, which is been conducted with the help on yahoo finance, where share price of companies and FTSE250 is detected. The data is relevantly adequate, which is collected from yahoo finance and is used in conducting data analysis of the report. The overall estimation period is calculated for 1-year duration from the announcement date of earnings report. Moreover, the event window is for 10 days, which is 5 days before the event and 5 days after the event. This gives the total evaluation date of 11 days, which is used in detecting the impact of earnings announcement. Furthermore, the data analysis part mainly uses abnormal returns, Steyx Squared, T-Test, slope, intercept, Steyx and Rsquared for detecting the overall significance of earnings announcement.

Importance/relevance of earnings announcements

From the evaluation of above table relevant returns provided by all the companies having good earnings assignment can be detected. In addition, the accumulator returns that is provided from the calculation of abnormal returns, which states a positive value of abnormal returns that is provided from the announcement. This relatively indicates that returns provided by companies having good earnings announcement is relatively higher. From further evaluation it is also identified that after the announcement date the T-test of abnormal returns is relatively high in comparison to values before the announcement. The abnormal returns during the announcement is relatively higher income parents to all the other days, which is supported by the signal provider from T-test of abnormal returns.

The calculation also indicates a high CAAR of 0.043, which is derived from the abnormal returns. This directly indicates the positive attributes of good earnings announcement, which is conducted by the companies. The highest average abnormal returns were only detected on the day of the announcement, which was conducted by the company. This relatively indicates that positive earnings announcement increases the value of shares and provides investors with abnormal returns. In this context, Frederickson and Zolotoy (2015) argued that increment in abnormal returns relatively indicates the wrong pricing of shares, which is conducted by investors.

The above table mainly depicts the overall Test Stats for Average Abnormal returns, which could help in identifying the overall error in abnormal returns. In addition, the Sum of the Squared Steyx is mainly at the levels of 0.001209601, while the Average of Steyx Squared is at 0.00024192. Moreover, the Square root of the Average Steyx directly indicate the minimum error in returns from investment. Furthermore, Square root of the Average Steyx is at the levels of 0.015553787, which is used in detective CAAR. Jenkins, Kimbrough and Wang (2016) mentioned that with the help of Steyx functions investor can identify the abnormal returns, which is generated from stocks.

The above table indicates the overall abnormal returns of stocks having bad earnings report, which might help in understanding their price movement. From the valuation it could be identified that only on the day of the announcement in the changes in abnormal return was registered, which is identified by the signal column. Furthermore, the evaluation indicates the implications of bad earnings report, which is presented by the companies in the market. this relatively indicates that the market as effectively compensated the decline in revenues of the organizations, while deriving the actual share price. The CAAR value of bad earnings report portfolio indicates for negative abnormal return, which is provided by the shares. The CAAR is mainly at the levels of -0.0285, which relatively depicts the total abnormal returns that is provided at the end of observation period. this depiction of the abnormal returns mainly indicates the market efficiency addressing the profits of the company. Barron, Byard and Yu (2017) mentioned that with the help of announcements companies can project all the relevant decisions that is been conducted to achieve sustainable growth. The share price level has adequately falling for all the company who has bad earnings announcement, as valuation of the company declined, which is been compensated by the share market.

Empirical evidence on the wealth effects of earnings announcements

The abnormal returns are mainly evaluated in the above table, which is for the companies that have bad earnings announcements. From the valuation, Square root of the Average Steyx is at the levels of 0.000133928, which is used to derive the T-Test of abnormal returns. Moreover, the Sum of the Squared Steyx is at 0.000669639, while Average of Steyx Squared is at 0.000133928. This relatively indicates the overall normal return deviation which will be provided buy the stocks. The relevant error in the abnormal returns could be used by investors to identify the share price movement of a company, which would help in improving their investment return.

From the evaluation, companies providing both good earnings announcement and bad earnings announcement has similarity with between the generation of abnormal returns. Furthermore, the evaluation also indicate that error and abnormal returns is a relatively higher for companies providing good earnings announcement. On the other hand, companies provide bad on use of announcement have low errors. This is due to the fact that valuation of the company with increase profitability is not easy to comprehend by the investors. Nevertheless, CAAR of companies having good earnings announcement is a relatively higher in comparison to the companies having bad earnings announcement. In addition, it is due to the impact of shareholders sentiments, which derives the actual value of the stock. the companies provide an expected return, which will be achieved in the fiscal year (Efendi, Park and Smith 2014). However, the non-completion of the projected returns would result in drastic changes in the share price of the company. Therefore, the good earnings announcement indicated a more valuation for the company, which increased the chances of abnormal returns and errors. Though, valuation of bad earnings announcement is effectively conducted by investors, where the abnormal returns are high. 

Conclusion:

From the evaluation of assessment impact of earnings announcement is evaluated, which might allow investors to obtain abnormal gains from investment. devaluation of good and bad awnings announcement is conducted within the assessment, which helps in deriving the chances of error and abnormal returns provided from investment. Furthermore, the use of statistical tool mainly indicated that abnormal returns are achieved during the announcement of earnings that is conducted by companies. In addition, the abnormal returns are relatively positive if news is good, while it is negative during bad announcements. Additionally, the imperial research is being defected in the assessment, which the mechanism of abnormal returns during positive earnings announcement. Moreover, the error during the bad earnings announcement is relatively low, as investors would anticipate the value negative announcement.

Methodology

Reference and Bibliography:

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