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Effects of prior voluntary disclosure on earnings announcements in an environment with low information and regulation

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  • Cheng Chee Mun, Eugene
  • Courtenay, Stephen M.
  • Rahman, Asheq R.

Abstract

This study examines the association between levels of annual report voluntary disclosure and the market reaction to the next interim earnings announcement in a market with both low regulation and analyst following. We examine the first order effects of voluntary disclosure by using direct measures for both the level of voluntary disclosure, and the market effects of such disclosure. The results show that preannouncement voluntary disclosure significantly reduces the price and volume reactions in the earnings announcement period, and is consistent with the Kim and Verrecchia (1991a) framework and the Atiase and Bamber (1994) empirical findings. We extend the analysis to investigate trading behavior during the earnings announcement period, and observe the trading behavior predicted by Kim and Verrecchia (1991b, 1994). We conclude that voluntary disclosure in annual reports can be regarded as an important determinant of preannouncement information precision in markets with low regulation and analyst following, and observe the expected trading behavior as modeled in Kim and Verrecchia (1991a), and extended in Kim and Verrecchia (1991b, 1994).

Suggested Citation

  • Cheng Chee Mun, Eugene & Courtenay, Stephen M. & Rahman, Asheq R., 2011. "Effects of prior voluntary disclosure on earnings announcements in an environment with low information and regulation," Pacific-Basin Finance Journal, Elsevier, vol. 19(3), pages 308-329, June.
  • Handle: RePEc:eee:pacfin:v:19:y:2011:i:3:p:308-329
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    References listed on IDEAS

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    Cited by:

    1. Aman, Hiroyuki, 2013. "An analysis of the impact of media coverage on stock price crashes and jumps: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 22-38.
    2. Chang, Chiao-Yi, 2013. "The market response of insider transferring trades and firm characteristics in Taiwan," Emerging Markets Review, Elsevier, vol. 16(C), pages 131-144.

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