Bimodality In Interim Reports: An Analysts' View

Cumulative abnormal residuals (cars) show how markets adjust to published information. Theoretically, cars are assumed to display unit normal behavior.  Despite its merits, car has proved to be a somewhat imprecise measure of market response to published information.  In practice, cars exhibit considerable deviation from theoretical unit normal behavior. Three disparities between theory and practice can be pinpointed.  These are car: (1) location, (2) shape, and (3) stability.  In our previous work we have demonstrated that cars are often bimodally distributed.  This finding shows one reason why it takes semistrong efficient markets some time to digest new information. Cars, for the time period during which markets analyze the new value determining data, are usually bimodally distributed. One mode of the distribution represents the impact of good news. The other peak is caused by bad news.  The valley, between the two peaks, indicates the influence of neutral news.  This paper analyzes the interim reports, which constitute the data for our previous related studies. This research identifies the type of new information that creates bimodal cars

Use of Interim Earnings Information on the Helsinki Stock Exchange

In this paper we study how the market uses the information on current and past interim earnings. Our hypothesis is that investors focus on a comparison of year-to-year changes in interim earnings. We provide further evidence on how the market acts in the face interim earnings announcements in an emerging market. The data is based on the Finnish market covering the years 1992-2002. We found, consistent with Ball and Bartov, evidence that investors underestimate the magnitude of the serial correlation in interim earnings. The results suggest that investors use, at least in part, a seasonal random walk model when forming earnings expectations.</p

Major determinants of Interim Disclosures in an Emerging Market

An interim financial reporting protocol became mandatory in Finland as recently as calendar year 1986. This makes the Helsinki Stock Exchange an excellent forum for the investigation of the determinants of periodic reporting in present day European conditions. It is hypothesized that the level of disclosure should be a function of a firm\u27s: governance structure, business risk, market risk, capital structure, stock price adjustment, growth, growth potential and size. As predicted, Finnish interim disclosure over the period 1985 to 1993 is directly related to the quantitative measures of business risk, capital structure, size and market maturity. One other hypothesis is confirmed. Governance is found to be inversely related to disclosure, suggesting that, the greater the institutional concentration of ownership of Finnish firms by other firms, the lower the degree of interim disclosure

An Analysis of the Impact of Varying Levels of Interim Disclosure on Finnish Share Prices within Five Days of the Announcement

This research examines the relationship between interim reports submitted to the Helsinki Exchanges and the share prices of reporting firms over the over the period 1985-93. The purpose of this investigation is to determine the differences in magnitude and timing of price changes associated with three levels of voluntary disclosure: (1) less-than expected, (2) about-as expected and (3) greater-than expected. The findings are that price adjustments begin on the announcement day for firms that report in magnitudes about-as expected. The share prices initially rise above the association period value, confirming DeBondt & Thaler (1985). Then, share prices decline to the association period value, confirming Daniel, Hirshleifer & Subrahmanyam (1998). This helps resolve an apparent empirical conflict. The reaction is delayed by one day for firms reporting in less-than expected amounts. The market reaction is delayed three days for firms reporting in greater-than expected magnitudes. This provides the additional insight that the amount of interim information disclosed matters to the investor: a finding that contradicts the efficient markets hypothesis (Fama, 1970). This research is concerned with the magnitude of reporting, only. Further insights may be gained in subsequent research focusing on the quality of the reports

Firm-level Disclosure in the Baltic and Nordic Regions Before and After the Mandatory Adoption of the IFRS

This study systematically examines the levels of disclosure (i.e. the availability of firm-specific information to those outside publicly traded firms, measured by disclosure indices) in the annual reports of firms from the Baltic states of Estonia, Latvia and Lithuania, and compares the results with a sample of Nordic firms. The Baltic and Nordic regions are members of the EU and have had the same accounting regulations and stock market structure since 2005. In order to focus on and isolate the effect of regulation change on disclosure as reliably as possible, the time period used in this paper is 2004 and 2006, i.e. one year before and one year after the mandatory adoption of the IFRS. NASDAQ OMX owns and operates (with similar trading and quotation mechanisms) the stock exchanges that list all of our sample firms. The countries in our sample also have similar corporate governance regulations and recommendations for their listed firms. These similarities enable us to analyze whether other institutional and economic related factors, i.e. remaining matters that rule, regulate and monitor firms' legal duties and the role of stock markets in an economy, and the principal societal differences in the sample countries, influence firms' disclosure practices. We find that the level of financial reporting disclosure in annual reports is lower for Baltic firms than for Nordic firms, both before and after the introduction of the EU mandated International Financial Reporting Standards (IFRS) in 2005. However, the regulated financial reporting disclosure of Estonian firms matches that of their Nordic counterparts. This outcome is in line with the early proactivity and long-range strategy of regulators in Estonia aligning Estonia's GAAP with the IAS/IFRS. Our results support the conclusion that disclosure practices are affected by factors beyond the IFRS and the similarity between the regions' market trading and quotation mechanisms. This study provides evidence that systematic and strong-enough regulatory actions influence disclosure practices. We also hope that the disclosure indices described in this paper will help managers recognize the potential and richness of financial reporting disclosure as a communication tool

Market use of disclosure components in interim reports

The degree of unexpected disclosure in interim reports affects the communication of earnings information to the market. This finding is built upon here by investigating whether individual components of disclosure, rather than the overall disclosure, are made use of. The data comprise information disclosed in interim reports submitted to the Helsinki Stock Exchange (HSE) in the period 1985-93. Four different disclosure components are investigated. The major finding is that reported earnings have an immediate effect after the event. In addition, there is a delayed response to earnings when the quality of the financial analysis is high. This shows that analytical disclosure enhances and reinforces the usefulness of the earnings information to the market. Specifically, when the financial analysis section of a report is comprehensive, it has, conjointly with earnings, a strong effect on returns for as long as 7 days after the event.Corporate communication Interim reports Disclosure components CAR

A multidimensional model for the disclosure policy of a firm

It is suggested in this article that a firm's mandatory disclosure policy can be summarized in a single factor characterizing the type of firm. For voluntary disclosure policy a firm-size variable should be included in the model, in addition to the firm-type factor. The fit of the capital structure and growth factors is tested for the basic saturated model. In the next phase, the possibility of combining these two factors into a single factor, resulting in a more parsimonious model, is tested. The test in favour of the one-factor model is clearly passed. The results add to our current understanding of the determinants of interim reports in a relatively new interim reporting practice, namely in Finland. Compared to conventional regression models with many independent variables, this study reports a model that reduces the number of parameters. Furthermore, valuable insight is gained into the differences between the determinants of mandatory and voluntary disclosures. This, in turn, should be able to help legislators and regulators in their work.Business communication mandatory disclosure voluntary disclosure SURE models interim reports

The impact of disclosure on the market response to reported earnings

There is a wealth of evidence of a certain delay in the market's adjustment to published earnings information. However, there is a shortage of studies focusing on whether this behaviour can be explained at least partially by the level and quality of disclosures released together with earnings. This paper explores whether the degree of disclosure is related to the market reaction, and in particular whether the quantity and quality of disclosure affects the adjustment of security prices to interim earnings announcements. Evidence on the pricing of disclosures is also presented. The data comprises interim reports submitted to the Helsinki Exchanges in the period 1985-93. Interim reports are used because they relate to a specific event conveying new and previously unpublished material to the market, in contrast to annual reports which primarily document the history of the previous year. It is found that both disclosure and earnings are important in explaining drift, and our results indicate that the drift is associated with disclosure. These results augment the non-US market evidence of this drift.