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Regularities in the equity price response to earnings announcements in Spain

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  • Maria Jose Arcas Pellicer
  • William Page Rees
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    Abstract

    This paper studies the market's reaction to 660 earnings announcements made during the period 1991-95 in Spain. This period starts shortly after the completion of the revision of Spanish financial accounting practices to bring them into line with EC requirements. As expected, we find that the earnings disclosures are accompanied by abnormal volatility; however, we also discover positive abnormal returns and an upward shift in beta. Furthermore, both expected and unexpected changes in earnings have explanatory power for abnormal returns accompanying earnings announcements - although this result is largely driven by the smaller firms in the sample. This evidence is consistent with a change in the risk-return relationship and with unsophisticated investors neglecting value-relevant information.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/096381899335727
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal European Accounting Review.

    Volume (Year): 8 (1999)
    Issue (Month): 4 ()
    Pages: 585-607

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    Handle: RePEc:taf:euract:v:8:y:1999:i:4:p:585-607

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    1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
    2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    3. Cohen, Kalman J. & Hawawini, Gabriel A. & Maier, Steven F. & Schwartz, Robert A. & Whitcomb, David K., 1983. "Friction in the trading process and the estimation of systematic risk," Journal of Financial Economics, Elsevier, vol. 12(2), pages 263-278, August.
    4. Gibbons, Michael R., 1982. "Multivariate tests of financial models : A new approach," Journal of Financial Economics, Elsevier, vol. 10(1), pages 3-27, March.
    5. Fried, Dov & Givoly, Dan, 1982. "Financial analysts' forecasts of earnings : A better surrogate for market expectations," Journal of Accounting and Economics, Elsevier, vol. 4(2), pages 85-107, October.
    6. Lee, Charles M. C., 1992. "Earnings news and small traders : An intraday analysis," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 265-302, August.
    7. Penman, Stephen H., 1984. "Abnormal returns to investment strategies based on the timing of earnings reports," Journal of Accounting and Economics, Elsevier, vol. 6(3), pages 165-183, December.
    8. Carlos Ocaña & J. Ignacio Peña & Doloros Robles, 1997. "Preliminary Evidence on Takeover Target Returns in Spain: A Note," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 145-153.
    9. Araceli Mora & William Rees, 1998. "The early adoption of consolidated accounting in Spain," European Accounting Review, Taylor & Francis Journals, vol. 7(4), pages 675-696.
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    Cited by:
    1. Sonia Sanabria, 2004. "Comportamiento De Los Precios Y Volúmenes De Negociación Ante Anuncios De Beneficios Anuales," Working Papers. Serie EC 2004-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Pascal Dumontier & Bernard Raffournier, 2002. "Accounting and capital markets: a survey of the European evidence," European Accounting Review, Taylor & Francis Journals, vol. 11(1), pages 119-151.
    3. David Abad & José Yagüe & Sonia Sanabria, 2005. "Liquidity And Information Around Annual Earnings Announcements: An Intraday Analysis Of The Spanish Stock Market," Working Papers. Serie EC 2005-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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