Event Study: Market Reaction to Corporate Result Announcements

Event Study: Market reaction to corporate result announcements

Deepak Motiramani

Symbiosis Centre for Management and Human Resource Development (SCMHRD)

Abstract

Event studies have various applications in accounting and finance. It can be used in mergers and acquisitions, result announcements, issue of new debt or equity or announcement affecting a specific industry.

The purpose of this paper is to propose a research outline which examines the effect on stock prices on annual corporate results announcements. It uses event study approach to verify the assumption that stock prices fluctuate on certain events such as annual result announcement. We saw a pattern in stock investments that some personal decisions for investment were based on annual results and guidance being given by companies for future business and value creation. Most of the times the guidance for these companies is given and it would be interesting to note that stock price movement in terms of expected guidelines and actual performance.

Since in Bombay Stock Exchange BSE top 30 companies have a major contribution to Sensex and we intend to use in the analysis. The question for the research would be if the results announcements have any effect on stock price movement in stocks?

We intend to use “market model approach” to analyze linear relationship between market return and security return.

A window of 7 days from 3 days prior to event and 3 days later is proposed to be taken to observe the price movement over 2 years for 30 scrips from Sensex. Since the market expectations and sentiments play a crucial role, it would also be interesting to note the different announcements company makes during this window. This proposal is intended to be used for research in V semester of MBA (Executive Education) to complete the actual analysis and publish paper.

Keywords: Market efficiency, Analyst expectations, annual result, Corporate Results, Market Model, Sensex

Introduction

Information flow is...