Stock market has been found to react to
various corporate announcements. One such significant announcement,
which has a bearing on the stock price movement of the
firm, is earnings information disclosure. This phenomenon
is reflected in the abnormal stock return of the firm surrounding
the announcement. The magnitude of abnormal return provides
a direct measure of unexpected change in security holders'
wealth associated with the event (Kothari and Warner, 2004).
The effect of the earnings announcements has been found
to persist for a significant time, creating post earnings
announcement drift. However, the magnitude of the effect
and the time taken to incorporate the information content
of earnings announcements vary from market to market and
depend on characteristics of the firm under study. Thus,
the effect of the earnings announcements is an important
empirical matter in the capital market, influencing the
movement of share prices (Das et al., 2007).
The main objective of the study is to
investigate the impact of quarterly earnings announcements
on stocks constituting the Sensex. The study of the effect
of clustering of event dates on the overall stock returns
has been incorporated in the study. If quarterly earnings
announcements have informational significance for investor,
then such announcement should induce abnormal stock return
during the period surrounding the announcement. The study
also investigates whether stocks manifest price drift over
a period of time corresponding to `good' and `bad' announcements.
Usually, statistically significant price changes occur
in the predicted direction, i.e., upward drift in the case
of good announcements and downward drift in the case of
bad announcements (Das et al., 2007). |
