Abstract
Purpose The purpose of this paper is to assess the information value of earnings announcements for the 2007–2017 period in Borsa Istanbul. Design/methodology/approach Abnormal volatility (AVOL) and abnormal absolute return (AAR) in the three-day window around the earnings announcement are used as proxies for information content. A pooled regression of AVOL and AAR is conducted to test for the existence of information content and analyze its time trend along with its determinants. Findings The authors find significantly positive AVOL and AAR which shows that earnings have information content for investors during the sample period. Furthermore, both proxies demonstrate a positive time trend after controlling for various firm characteristics and surprise measures. The authors take this as evidence that overall informativeness of earnings has increased over time. The authors observe that this increase is most prevalent for growth companies and earnings announcements with high absolute surprise. This study provides partial support for the hypothesis that value of earnings announcements has increased after an improvement in information dissemination technology with the inception of the online disclosure platform, KAP. Practical implications Understanding information value of earnings announcements is of interest for companies which prepare earnings reports, regulators who set standards on their content and frequency and investors which make investment decisions based on information released at these announcements. Originality/value There had been few non-US studies related to information value of earnings announcements. The overwhelming majority of these are conducted using limited data sets from the latter part of the last century and only analyze annual earnings announcements. The authors aim to shed light on the subject using a broad and recent sample of quarterly earnings announcements from a major emerging market, Turkey.
Highlights
Earnings announcements are the main scheduled and periodic corporate announcement for listed firms in a stock market as they provide a wealth of financial and operational information with regard to the latest fiscal period
We empirically look at whether quarterly earnings announcements have information content and how the informativeness of these announcements has changed over the 2007–2017 using a broad sample comprised of over 12,000 observations coming from 396 companies listed at Borsa Istanbul, the sole stock exchange in Turkey
This provides strong evidence that the information content of earnings as proxied by abnormal volume (AVOL) and abnormal absolute return (AAR) has increased over time in our sample period
Summary
Earnings announcements are the main scheduled and periodic corporate announcement for listed firms in a stock market as they provide a wealth of financial and operational information with regard to the latest fiscal period. An analysis of whether these announcements are valuable in terms of their content is of interest for companies, investors as well as regulatory bodies. Beaver (1968) was the first to empirically examine the information content of earnings announcements. From a valuation point of view, an earnings announcement could be considered to have information if it leads to change in market participants’ expectation for future returns. Beaver (1968) used abnormal volatility and abnormal volume at the time of announcement as gauges for information value as the former reflects the resulting change in expectations of the market as a whole while the former reflects changes in the expectation of individual investors. Beaver (1968) used abnormal volatility and abnormal volume at the time of announcement as gauges for information value as the former reflects the resulting change in expectations of the market as a whole while the former reflects changes in the expectation of individual investors. Landsman and Maydew (2002) used similar proxies to those
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