Price reaction to earnings announcements, a study of vietnam stock market

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY  DƯƠNG THÚY AN PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A STUDY OF VIETNAM STOCK MARKET MASTER THESIS Ho Chi Minh City – 2011 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY  DƯƠNG THÚY AN PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A STUDY OF VIETNAM STOCK MARKET MAJOR: FINANCE – BANKING MAJOR CODE: 60.31.12 MASTER THESIS SUPERVISOR: Ph.D TRƯƠNG TẤN THÀNH Ho Chi Minh City – 2011 ACKNOWLEDGEMENT Firstly, I would like to express my profound gratitude and deepest appreciation to my supervisor, Ph.D Trương Tấn Thành, for his intensive support, precious guidance, insightful comments as well as constructive direction throughout my thesis Due to his support, I can overcome many problems during doing this thesis I’m very grateful to nvtrungkr (an admin of forum http://vikool.org) for his help in finding many valuable journal articles Special thanks to Vu Khanh Hoang for his assistance in collecting the data I would like to express my appreciation to all instructors at Faculty of Banking and Postgraduate Faculty, University of Economics Ho Chi Minh City for their support and valuable knowledge during my master course Finally, I wish to thank my beloved family for their boundless support, abundant love and encouragement in my life iii ABSTRACT A substantial number of empirical studies has investigated the information content of earnings announcements While most of studies focus on United of States data or data from other developed countries such as United of Kingdom, Europe, Australia etc, other emerging and developing markets are largely unexplored This motivates us to further explore this issue in Vietnam stock market The study investigates the price reactions to annual earnings announcements on the Vietnam stock market We conduct an event study method on a sample of 109 listed firms of Ho Chi Minh Stock Exchange (HOSE) over the two fiscal years (2009 – 2010) to examine stock price reactions to annual earnings announcements We find that significant abnormal returns before earnings announcements date It provides evidence of informational value of earnings information release The results of this study also provide that stock prices respond more strongly to negative than positive earnings surprises Our findings are robust across several sensitivity analyses Keywords: price reactions, earnings announcements, event study, Vietnam stock market iv Table of Contents LIST OF ABBREVIATION vii LIST OF FIGURES viii LIST OF TABLES ix CHAPTER 1: INTRODUCTION 1.1 Background 1.2 Research objectives and research questions 1.3 Research methodology and scope 1.4 Structure of the thesis CHAPTER 2: LITERATURE REVIEW 2.1 Informational effects 2.2 Stock price reactions to earnings announcements 2.3 Post Earnings Announcements Drift 2.4 Other reactions to earnings announcements 10 2.4.1 Trading volume and earnings announcements 10 2.4.2 Liquidity, information asymmetry and earnings announcements 11 2.4.3 Volatility and earnings announcements 13 2.5 Information disclosure regulation on listed firm in Vietnam 13 2.6 Summary 15 CHAPTER 3: DATA AND METHODOLOGY 16 3.1 Data 16 3.1.1 Sample selection 16 3.1.2 Data collection 16 v 3.1.3 Sample description 17 3.2 Methodology 18 3.2.1 Descriptive statistics 18 3.2.2 Event study 19 3.3 Hypotheses development 22 CHAPTER 4: DATA ANALYSIS AND FINDINGS 24 4.1 Descriptive statistics 24 4.2 Results of the price analysis 25 4.3 Results of price response to unexpected earnings 30 4.4 Sensitivity analysis 32 4.4.1 Concurrent disclosures 32 4.4.2 Rank test 34 CHAPTER 5: CONCLUSIONS AND REMARKS 37 5.1 Conclusions 37 5.2 Implications 37 5.3 Limitations 38 5.4 Recommendations 38 REFERENCES 39 APPENDIX 44 vi LIST OF ABBREVIATION AR Abnormal return AAR Average abnormal return EPS Earning per share HOSE Ho Chi Minh City Stock Exchange HNX Ha Noi Stock Exchange NYSE New York Stock Exchange PEAD Post Earnings Announcements Drift SSC State Securities Commission of Vietnam vii LIST OF FIGURES Figure 3.1 Time line of event study 19 Figure 4.1 Plot of cumulative abnormal return for earnings announcements from day -20 up to day 20 28 Figure 4.2 Plot of cumulative abnormal return for earnings announcements from day -20 up to day 20 31 viii LIST OF TABLES Table 3.1 Sample selection 17 Table 3.2 Sample distributions by timing of announcement 17 Table 3.3 Firm sample distributions by sector 18 Table 4.1 Descriptive statistics for stock price, stock return, and market value in event window 24 Table 4.2 AARs with their t-test around event window [-20; 20] 25 Table 4.3 Cumulative abnormal returns of four periods: pre-event period, announcement day, post-event period and whole period 27 Table 4.4 AAR with their t-test for positive and negative portfolios 30 Table 4.5 AARs with their t-test around event window for sample without major concurrent disclosures 33 Table 4.6 Rank test around event window [-20; 20] 35 ix Price reactions to earnings announcements: A study of Vietnam stock market CHAPTER 1: INTRODUCTION 1.1 Background Companies that trade stocks in the public financial markets are required to report their financial statement Earnings announcement is an official public statement of a company's profitability for a specific time period, typically a quarter or a year Earnings announcements play an important role in the stock market Earnings statements provide much useful information to shareholder, investor, and analyst It reveals how healthy a company’s operation It is one of main factors influenced the value of its stock Investors are dependent on information disclosure of company to determine whether buying or selling stocks of that company A large body of researches in finance and accounting studies the impact of earnings announcements on financial markets Specifically, many researchers have provided evidences on the market response to earnings announcements particularly in developed countries For example: Ball & Brown (1968), Beaver (1968), Morse (1981), May (1971), Kiger (1972), Beaver, Clarke & Wright (1979), Morse (1981), Patell & Wolfson (1984), Foster, Olsen & Shevlin (1984), Jennings & Starks (1985), Bamber & Cheon (1995) They find the effect of earnings announcements on stock price, liquidity, volatility, and information asymmetry Vietnam stock market was established lately in 2000, but it has been a rapid growth It has two stock exchanges: Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX) HOSE was firstly established in July 28 th 2000 with listed firms At the end of 2010, there are 275 listed firms in HOSE The total capitalization value on HOSE at the end of 2010 has reached 591.345 billion VND, 19.4% higher than of 2009 The world financial crisis in 2008 has been impacted strongly the performance According to definition of website www.investopedia.com Price reactions to earnings announcements: A study of Vietnam stock market 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Study of Earnings and Dividend Announcements, The Journal of Finance, 41(5), 1089 -1102 Yohn, T L (1998), Information Asymmetry Around Earnings Announcements, Review of Quantitative Finance and Accounting, 11(2), 165-182 The Ministry of Finance (2010), Circular No 09/2010/TT-BTC of The Ministry of Finance dated 15 January 2010 43 Price reactions to earnings announcements: A study of Vietnam stock market APPENDIX Appendix: List of 110 listed firms in the sample No 10 11 12 13 14 15 16 17 44 Price reactions to earnings announcements: A study of Vietnam stock market No 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 45 Price reactions to earnings announcements: A study of Vietnam stock market No 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 46 Price reactions to earnings announcements: A study of Vietnam stock market No 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 47 Price reactions to earnings announcements: A study of Vietnam stock market No 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 48 Price reactions to earnings announcements: A study of Vietnam stock market No 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 49 ... 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