Information Content of Net Earnings and the Stock Price Adjustment

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Abstract

The process by which security prices adjust to the release of “new” information is an area of study which has received much attention in accounting and finance. In finance, the main interest has been whether prices adjust in a rapid and unbiased manner to new information. In accounting, the focus has been more on whether different accounting disclosures have information content.
The present paper attempts to study and inspect the changes in stock prices vis-à-vis actual net earnings and predicted net earnings announcements, in Tehran Stock Exchange. To analyze these hypotheses, changes in stock price during two days were considered. 1- The date of announcement of actual net earnings and predicted net earnings and 2- One month after the date of announcement of actual net earnings and predicted net earnings. Statistical population included companies actively traded in Tehran Stock Exchange throughout one-year period of 2008. Two hypotheses were made for this research and were analyzed by Sign and Chi-2 tests. Results show that there is the existence of information contents in predicted net earnings. Furthermore a significant relationship exists in frequency observations of price changes at announcement dates of actual net earnings and predicted net earnings.

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References

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History

  • Receive Date: 26 July 2012
  • Revise Date: 29 January 2021
  • Accept Date: 14 May 2013

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