Price reaction to earnings announcements a study of vietnam stock market

MAJOR:FINANCE– BANKINGMAJOR CODE:60.31.12 MASTERTHESIS SUPERVISOR:Ph.D.TRƯƠNGTẤNTHÀNH HoChiMinhCity–2011... TableofContents LISTOFABBREVIATION...vii LISTOFFIGURES...viii LISTOFTABLES...i

MASTERTHESIS

HoChiMinhCity–2011

MAJOR:FINANCE–

BANKINGMAJOR CODE:60.31.12

MASTERTHESIS SUPERVISOR:Ph.D.TRƯƠNGTẤNTHÀNH

HoChiMinhCity–2011

ACKNOWLEDGEMENT

Firstly,Iwouldliketoexpressmyprofoundgratitudeanddeepestappreciationtomysupervisor,P h D TrươngTấnThành,forh i s intensivesupport,preciousg u i d a n c e , insightfulcommentsaswellasconstructivedirectionthroughoutmythesis.D u e tohissupport,Icanovercomemanyproblemsduringdoingthisthesis

I’mv e r y g r at efu l tonvtrungkr(anadminoff o r u mh t t p : / /

v i k o o l o r g )f o r h i s helpinfindingmanyvaluablejournalarticles.S p e c i a l thankstoVu

K h a n h H o a n g forhisassistanceincollectingthedata

Iwould li k e toexpressmyappreciationtoa l l instructorsatFacultyofBankingandPostgraduateFaculty,UniversityofEconomicsHoChiMinhCityfortheirsupportandvaluableknowledgeduringmymastercourse

Finally,Iwishtothankmybelovedfamilyfortheirboundlesssupport,abundantloveandencouragementinmylife

ABSTRACT

Asubstantialnumberofempiricalstudieshasinvestigatedtheinformationcontentofearningsannouncements.WhilemostofstudiesfocusonUnitedofStatesdataordatafromotherdevelopedc o u n t r i e s s u c h asUnitedo f K i n g d o m , Europe,Australiae t c , otheremerginganddevelopingmarketsarelargelyunexplored.Thismotivatesustofurtherexploret h i s i s

s u e inV i e t n a m stockmarket.ThestudyinvestigatesthepricereactionstoannualearningsannouncementsontheVietnamstockmarket.Weconductaneventstudymethodonasampleof109listed firmsofHoChiMinhStockExchange( H O S E ) overthet wofiscalyears(2009–

2 0 1 0 ) toexaminestockprice reactionstoannualearningsannouncements.Wefindthatsignificanta b n o r m a l returnsbeforeearningsannouncementsdate.Itprovidesevidenceofinformationalvalueofearningsinformationrelease.Ther e s u l t s o f t h i s studyalsoprovidethats t o c k pricesrespondmores t r o n g l y tonegativethanp o s i t i v e e a r n i n g s surprises.O u r findingsa r e r o b u s t acrossseveralsensitivityanalyses

Keywords:pricereactions,earningsannouncements,eventstudy,Vietnamstockmarket.

TableofContents

LISTOFABBREVIATION vii

LISTOFFIGURES viii

LISTOFTABLES ix

CHAPTER1: INTRODUCTION 1

1.1 Background 1

1.2 Researchobjectivesandresearch questions 3

1.3 Researchmethodologyandscope 3

1.4 Structureofthethesis 3

CHAPTER2: LITERATUREREVIEW 5

2.1 Informationaleffects 5

2.2 Stockpricereactionstoearningsannouncements 5

2.3 PostEarningsAnnouncementsDrift 9

2.4 Otherreactionstoearningsannouncements 10

2.4.1 Tradingvolumeandearningsannouncements 10 2.4.2 Liquidity,informationasymmetryandearningsannouncements 11 2.4.3 Volatilityandearningsannouncements 13 2.5 InformationdisclosureregulationonlistedfirminVietnam 13

2.6 Summary 15

CHAPTER3: DATAANDMETHODOLOGY 16

3.1 Data 16

3.2 Methodology 18

3.2.1 Descriptivestatistics 18 3.2.2 Eventstudy 19 3.3 Hypothesesdevelopment 22

CHAPTER4: DATAANALYSISANDFINDINGS 24

4.1 Descriptivestatistics 24

4.2 Resultsofthe priceanalysis 25

4.3 Resultsofpriceresponsetounexpectedearnings 30

4.4 Sensitivityanalysis 32

4.4.1 Concurrentdisclosures 32 4.4.2 Ranktest 34 CHAPTER5: CONCLUSIONSANDREMARKS 37

5.1 Conclusions 37

5.2 Implications 37

5.3 Limitations 38

5.4 Recommendations 38

REFERENCES 39

APPENDIX 44

LISTOFFIGURES

Figure3.1Timelineofeventstudy 19Figure4.1Plotofcumulativeabnormalreturnforearningsannouncementsfromday

-20uptoday20 28Figure4.2Plotofcumulativeabnormalreturnforearningsannouncementsfromday

-20uptoday20 31

9

Table3.1Sampleselection 17Table3.2Sampledistributionsbytimingofannouncement 17Table3.3Firmsampledistributionsbysector 18Table4 1 Descriptivestatisticsf o r stockprice,stockreturn,andmarketvalueineventwindow 24Table4.2AARswiththeirt-testaroundeventwindow[-20;20] 25Table4 3 C u m u l a t i v e abnormalreturnso f fourp e r i o d s : pre-

eventperiod,announcementday,post-eventperiodandwholeperiod 27Table4.4AARwiththeirt-testforpositiveandnegativeportfolios 30Table4 5 A A R s withtheirt -

t e s t arounde v e n t w i n d o w forsamplew i t h o u t m a j o r concurrentdisclosures 33Table4.6Ranktestaroundeventwindow[-20;20] 35

Earningsannouncements playanimportantroleinthestockmarket.Earningsstatementsprovidemuchu s e f u l informationtoshareholder,investor,andanalyst.Itrevealshowhealthyacompany’soperation.Itisoneofmain factorsinfluencedthevalueofitsstock Investor s aredep end en t oninformationdisclosur e ofcompany todeterminewhetherbuyingorsellingstocksofthatcompany.

Alargebodyofresearchesinfinanceandaccountingstudies theimpactofearningsannouncementso n f i n a n c i a l markets.Specifically,manyresearchersh a v e providedevidencesonthemarketresponsetoearningsannouncementsparticularlyindevelopedcountries.F o r e x

a m p l e : Ball& B r o w n ( 1 9 6 8 ) , Beaver( 1 9 6 8 ) , M o r s e ( 1 9 8 1 ) , May(1971),Kiger(1972),Beaver,Clarke&Wright(1979),Morse(1981),Patell&Wolfson(1984),Foster,Olsen&Shevlin(1984),Jennings&Starks(1985),Bamber&C h e o n (1995).Theyfindtheeffectofearningsannouncementsonstockprice,liquidity,volatility,andinformationasymmetry.Vietnamstockmarketwasestablishedlatelyin2000,

butithasbeenarapidgrowth.Ithastwostockexchanges: HoChiMinhStockExchange(HOSE)andHaNoiStockExchange(HNX).HOSEwasfirstly

establishedinJuly28th2 0 0 0with2listedfirms.Attheendof2010,thereare275listedfirmsinHOSE.Thetotalcapitalizationvalueo n HOSEattheendof2010hasreached591.345billionVND,19.4%higherthanof2 0 0 9 Theworldfinancialcrisisin2008hasbeenimpactedstronglytheperformance

1 According

todefinitionofwebsitewww.investopedia.com.

ofV i e t n a m s t o c k m a r k e t Thetradingvolumeo f 20102hasreachedmorethan1 1 billionsecurities,equivalenttoavalueofVND362,000million,a6%riseinvolumeb u t an11%fallin valuecompared tothoseof2009.

Previousresearcheso n theinformationc o n t e n t o f earningsannouncementsmostlyfocusondevelopedcountriessuchasUnitedStates,UnitedKingdomandothercountriesinE u r o p

e Tod a t e , moreandmorestudiesprovidenewevidencesf r o m developingandemergingmarkets.Forexample:Fan-

fah,MohdandNasir(2008)inMalaysia,Alzahrani(2010)andAlzahrani&Skerratt(2010)inArabSaudi,Mlonzi,Kruger& N t h o e s a n e ( 2 0 1 1 ) inS o u t h African.However,t h e

r e islackofe m p i r i c a l evidenceaboutthisissueinVietn am stockmarket.Trần(2010)hasinvestigatedthee f f i c i e n c y o f s t o c k markettodividenda n n o u n c e m e n t s o fthreelistedf i r m s : STB,VNM,andFPTinVietnam.ThismotivatesustoanalyzethestockpricereactionstoannualearningsannouncementsinVietnamstockmarket

Thethesiscontributestoexistingliteratureandrealityinseveralaspectsasfollows:

First,thestudyexploresthestockreturnreactionstoannualearningsannouncementso n theVietnamstockmarket.Byusingdailydata,thethesisprovidesnewempiricalevidencesintheVietnamesecontextthathassomedistinguishedcharacteristicswithothermarketssuchasorder–driventradingmethod,noderivativeproducts,forbiddenshort-

selling,lowliquidityandlackofanalysts’forecast.Weemploystandardeventstudymethodtoinvestigatetheeffectoftheearningsevent

Secondly,ourfindingsmaybeusefulcautionforlistedfirmsindisclosingaccountinginformationinpractice.Earningsinformationisanimportantissuethatlargelyeffectpricebehaviourof i n v es t o r s Thus,listedf i r m s shouldp u t m o r e attentionstoinformationdisclosures

Lastbutnotleast,theresultsofthisstudyalsoprovideevidenceforpolicymakerstoenforcestrictlylawsonearningsinformationdisclosureandenhancecorporategovernanceoflistedfirms

2 According

toHOSE’sannualreportin2010.

1.2 ResearchobjectivesandresearchquestionsRes

earchobjectives

Thisstudyisconductedtoinvestigatetheassociationbetweenstockpricesandannualearningsannouncements ontheVietnam stockmarketinshort-

termhorizon.Ontheotherhand,weexaminewhethertheearningsinformationreleasespossessinformationalvalue

 ChapterIVpresentstheempiricalresultsandexplanations

 Inconclusion,C h a p t e r Vsummarizes thefindings,implicationsandputforwardsrecommendationsforfurtherresearch

CHAPTER2:L I T E R A T U R E REVIEW

Thepurposeofthischapteristosummarisereviewsanddiscusstheliteraturerelatedtotheinformationcontentsofearningsannouncementsandthelinkswithourstudy.Specifically,wemainlyfocusontherelationbetweenstockpricesandearningsannouncements.Moreover,wea l s o brieflyreviewo t h e r reactionstoe a r n i n g s announcements.Asthetheoryande m

p i r i c a l w o r k int h i s a r e a issovast,weonlyprovideareviewofafewmostrelevantonesforourlimitedscope

2.1 Informationaleffects

Accountinginformationplaysanextremelyimportantroleforallmarketparticipantsinstockmarket.Market–based

accountingresearchhasdevelopedfastsince1960s.Itinvestigatestherelationbetweenpublishedaccountinginformationandi n d i v i d u a l investor’sbehavioursasw e l l ascharacteristicso f stocksuchassharep r i c e s s t o c k return,tradingvolume(Lev&Ohlson,1982).Sincethen,numerousstudiesinliteraturehavedocumentedtherelationshipbetweenmarketreactionsandaccountingreports.Obviously,accountingdataconveysinformationcontenttoinvestors

AccordingtoF a m a ( 1 9 7 0 ) , inanefficientmarket,pricesfullyreflecta l l a v a i l a b l e information.Heproposesthreesubsetsofefficientmarket:weak-

formwithpricesjustreflecthistoricalprices;semi-strong formwithpricesadjust toallpubliclyavailableinformationandformwithpricesjustreflecthistoricalprices;semi-strong-

toallpubliclyavailableinformationandstrong-formwithpricesabsorballinformationrelevant.Amongv a r i e t y ofaccountinginformation,earningsareoneofthemostimportantsourceforinvestorsandanalysts

2.2 Stockpricereactionstoearningsannouncements

TheseminalpaperbyBall&Brown(1968)isthefirsttoinvestigateempiricallytheinformationc o n t e n t ofearningsa n n o u n c e m e n t s Employingthemonthlyd a t a , theyexaminethea s s o c i a t i o n betweena c c o u n t i n g incomenumbersands t o c k prices.T h e samplecons ists of2 6 1 fi r ms ontheNew YorkStockExchangecoveringtheper iod 1 9 5 7 -

1 9 6 5 Theyalsod i v i d e earningsa n n o u n c e m e n t s i n t o t w o t y p e s : badn e w s if

incomeforecaste r r o r isnegative,g o o d n e w s ifi n c o m e f o r e c a s t e r r o r ispositive.ApplyingA b n o r m a l PerformanceI n d e x (API),theyshowthattherea r e t h e relationshipsbetweenthesigno f incomeforecasterrorands t o c k returnr e s i d u a l Surprisingly,theyalsor e p o r t t h a t thed r i f t o f APIp e r s i s t s fort w o m o n t h s aftert h e announcements.L a t e r o n , thisp h e n o m e n o n isn a m e l y PostE a r n i n g A n n o u n c e m e n tDrift.

Inthesameyear,Beaver(1968)usesweeklydatasetofNewYorkStockExchangetostudytheinformationcontentofannualearningsannouncementsfrom1961-

theeffectofmarket-wideeventsuponthestockpricechange.Hefindsthatvolumeandpricechangesarehigherthanaveragein

theweeksofannouncements.Inaddition,herealizesmarketresponsesveryquicklysuchasfindingo f Famaetal (1969)

Inatheoryarticle,Kim&Verrecchia(1991)showthatthepricereactionatthetimeofannouncementsisproportionaltoboththeunexpectedportionoftheannouncementanditsrelativeimportanceacrossthep o s t e r i o r b e l i e f s o f traders.Theyex p l a i n thattherelativeimportanceisincreasingwitht h e precisiono f t h e announcementanddecreasingintheprecisionofthepreannouncementinformation

Since1960s,alargebodyofempiricalresearchesonstockmarketreactiontoearningdisclosurehasbeenconductedinthecontextofUnitedStatessuchasfindingsofMay(1971),Kiger(1972),Beaver,Clarke&Wright(1979),Morse(1981),Patell&Wolfson(1984),Foster,Olsen

FollowingMay( 1 9 7 1 ) , K i g e r ( 1 9 7 2 ) w o r k s ona sampleof8 7 f i r m s inN e w Y o r kStockExchanged u r i n g thep e r i o d 1 9 6 6 – 1 9 6 9 Usingcorrelationanalysis,h e a l s o

documentsthep o s i t i v e correlationbetweenadjusted pricechangesandhypothesized pricechangessurroundingtheannouncementdateofinterimreport.

ApplyingSpearmanrankcorrelation,Beaver,ClarkeandW r i g h t (1979)indicatea positiverelationshipbetweenunsystematicsecurityreturnsandthemagnitudeofearningsforecasterrors.Theirresultsbaseontwoearningforecastmodels:onebasedo n theprocessofaMartingalewithdriftandoneassumedthatexpectedearningshavea linearrelationwithaverageearningsofmarket

ThesubsequentstudybyMorse(1981)ondailydatareportslargepricechangesonthedayprior,theannouncementdayandtwodaysfollowingthequarterlye a r n i n g s announcementinTheWallStreetJ o u r n a l f r o m 1 9 7 3 –

1 9 7 6 Hisfindingsimplyitseemstotakes ev er al timetoabsorbandad ju st price atthei n d i

v i d u a l andportfoliolevel.Healsofindsnoconsiderabledifferencesforbothexchangesecuritiesportfolioandoverthecountersecuritiesportfolio

Usingi n t r a d a y data,Patell& Wolfson(1984)testmeanreturn,returnvarianceandserialcorrelationo f s t o c k p r i c e toexaminet h e speedo f stockpricea d j u s t m e n t toearningsan

dd i v i d e n d s a n n o u n c e m e n t s o c c u r r i n g from1 9 7 6

-1 9 7 7 QuarterlyandannualearningsexpectationsareValueLineInvestmentSurveyforecasts.Theirresultsshowthattherearequicklyreactionstodisclosure.Stockreturnsarepositivelydetectedintheannouncementday,theovernightperiodandtheopeningoftradingonthenextday,p

a r t i c u l a r l y at3 0 m i n u t e s b e f o r e andaftera n n o u n c e m e n t F o r dividendsannouncements,thes t o c k p r i c e r e s p o n s e issimilarb u t weakerthane a r n i n g s announcements

Empiricallyevidencesofpricereactionstoearningsannouncementscanbewitnessedn o t onlyinUnitedStatedata,butalsoinothermarkets

InthecontextofAustralia,Brown(1970,accordingtoCheung&Sami(2000))providesevidencethatthereismorepricereactiontoannualandsemiannualearningsannouncementsintheannouncementmonth.Thisevidencecanbeexplainedbysomereasons:AustralianfirmsissuesemiannualreportsinsteadofquarterlyreportsandthesizeoftheAustralianfirmsaremuchsmallerthanNYSEfirms

Inaworkingpaper,Louhichi(2004)usesintradaydatatoinvestigatemarketreactionaroundearningsa n n o u n c e m e n t s intheP a r i s B o u r s e d u r i n g thep e r i o d 2 0 0 1 –

2 0 0 3 Basedonthedifferencebetweenactualearningandfinancialanalysts’expectations,thesampleissplitintothreecategories:goodnews,badnewsandnonews.Applyingeventstudymethod,hefindsthatreturnsreactpositivelytogoodnewsandnegativelytobadn e w s In

addition,returnsdonotreactsignificantlytononews.HealsooffersevidencethatEuronextParisisefficientatsemi-strongformlevel

ByreplicatingMorse(1981),Cheung&Sami(2000)investigatethepricechangesandtradingvolumereactionstoannualearningsreleasesof191firmslistedontheStockExchangeofHongKong(SEHK)overtheyears1992to1995.TheirresultsmateriallyconfirmthefindingsofMorse(1981).Pricechangesareobservedsignificantlywithinfourdaysstartingthedayofannouncements.ExpandingMorse(1981),theyalsofindthatpricereactionsofnonbluechipstocks prolongovertimethanreactionsofbluechip

stocks.Thisimpliesthatanalystandinvestorsgivelessattentionfornonbluechipstocks

Su(2003)usesasampleof183earningsannouncementsduring theperiodfrom1997–

1 9 9 8 ontheShanghaiandShenzhensecuritiesexchange,includingfirmsissuebothAandBshares:domesticA-sharesandinternationalB-

shares.Basedontheoutcomeofthee v e n t , f i r m s inthesamplearea s s i g n e d tot w o portfolios:g r o u p I ifa c t u a l E P S exceedslastEPSorgroupIIifactualEPSisequalorlessthanlastEPS.Usingeventstudymethodology,hefindsthatA-

sharesinvestorsreactpositivelyandnegativelyforgroupIandgroupII,respectively,duringtwodaysbeforeannouncements.Thereactiontrendforg r o u p I andg r o u p IIkeeppersistingafterannouncements.Thesei m p l y thatA-

sharei n v e s t o r s failtor e f l e c t earningsinformationr a p i d l y andB

-s h a r e inve-stor-squicklyincorporateearning-srelea-se.The-sefinding-scanbeexplainedbythefollowingreasons:mostA-shareinvestorsareindividualswithshort-

terminvestmenthorizonwhilemostB-shareinvestorsarelargeinstitutionsthatcanaccessmoredetailedandaccuratefinancialinformation

Sponholtz( 2 0 0 8 ) ina studyinDenmarkfindssignificantpositivea b n o r m a l r e t u r n s accompanyingtheearningsannouncements.Inaddition,abnormalreturnspersist

severaldaysafterearningsannouncements;showasignalofinefficiencymarket.Thestudya l s o showst h a t a positivec o r r e l a t i o n betweentheinformationc o n t e n t andpredisclosureinformation,contrarytopreviousevidenceofalowlevelofpre-

announcementinformation.Ther e s u l t s c o n f i r m thata n a l y s t forecastmodelsaret h e bestproxyforunexpectedearnings.Inthisstudy,sheuseslumpedprocedure,uniformones,andtrade-to-tradeonesforstockreturnduetothintradingofsmallstockmarketDenmark

Recently,Mlonzi,Kruger&Nthoesane(2011)inastudyinSouthAfricanfindempiricalevidencethatthereislargenegativesharepricereactiontoearningsannouncementso n theALtX

s t o c k market.Theser e s u l t s comefrome a r n i n g s announcementsd u r i n g a r e c e s s i o

n a r y period,leadingtosharemarketerosiono f theselectedsample.Thestudyalsosho ws theweakformofmarketefficiency ofALtXstockexchange

Evidencesofpricereactionstoearningsannouncementskeepgrowinginothermarketsintheworld.Seemore:Ariff,Loh&Chew(1997)inSingapore,Chen,Cheng&Gao(2005)inChina,Abad,Sanabria,&Yagüe(2005)inSpanish,Chan,WatsonandWee(2005)inAustralia,L o

u h i c h i (2008)inF r a n c e ,

Fan-fah,MohdandNasir(2008)inMalaysia,Alzahrani(2010)andAlzahrani&Skerratt(2010)inArabSaudi

2.3 PostEarningsAnnouncementsDrift

PostEarningsAnnouncementsDrift(hereafterPEAD)wasfirstreportedinaseminalstudyofBall&Brown(1968).Thisphenomenonisdescribedasabnormalreturnofg o o d news(badnews)continuetodriftup(down)inpositive(negative)directionafterearningsannouncements(Nguyen,2009)

PEADhasbeenconfirmedforthelastfourdecadesandcontinuedtoachallengetotheefficientmarkethypothesis.Forexample:Foster,Olsen&Shevlin(1984),Bernard&Thomas( 1 9 8

9 , 1 9 9 0 ) , Abarbanell& B e r n a r d (1992),Ray& B a l l (1992),Bhushan(1994),Rangan&Sloan(1998),Liu,Strong&Xu(2003),Booth,Kallunki&Martikainen(1996),Forner,Sanabria&Marhuenda(2009).SomeexplanationsfortheexistenceofPEADa r e under-

reactiontoearningsurprise,i n f o r m a t i o n b i a s e d

2.4 Otherreactionstoearningsannouncements

Previousstudiesalsoprovideevidenceofotherreactionstoearningsannouncement,asmeasuredbyvolatility,tradingvolume,liquidity,andinformationasymmetry.Asmentionedattheintroductionofthischapter,wejustbriefsomekeystudiesconcernedwiththesereactions

2.4.1 Tradingvolumeandearningsannouncements

Theimportantdifferencebetweenpriceandvolumereactionisthatthepricereactionreflectschangesintheexpectationoftheaggregatemarketwhilethevolumereactionreflectschangesintheexpectationofindividualinvestors(Beaver,1968)

Kim&Verrecchia(1991)intheirtheorystudyalsoshowthatthevolumereactionatthetimeofthepublicannouncementisproportionaltoboththeabsolutepricechangeandameasureofdifferentialprecisionacrosstraders.Thenewlypublicannouncementjustisi m p o r t a n t toi n

v e s t o r s w i t h l e s s p r e c i s e privatepredisclosurei n f o r m a t i o n Itmeanst h a t thedifferentialp r e c i s i o n o f p r i v a t e informationbeforea n n o u n c e m e n t s causedifferentialr e a c t i o n o f investorsint r a d i n g volume.Int h e i r f o l l o w i n g theorystudy,Kim&Verrecchia(1994)alsopresentthattradingvolumerespondtoearningsannouncementsduetoinformedopinionsresultingfromdisclosure

Variousempiricalstudieshaveconfirmedthelinkbetweentradingvolumeandearningsa n

n o u n c e m e n t s3,f o r e x a mp l e : Beav er (1968),K i g e r (1972),M o r s e (1981),Bamber(1983,1987),Gajewski(1999),Cheung&Sami(2000),Landsman&Maydew

(2002),Otogawa(2003),Abad,Sanabria,&Yagüe(2005),Alzahrani(2010)

Beaver(1968)isthefirsttoexaminevolumereactionstoearningsannouncements.Hestatesthatthereisalargemeanvolumeresidualintheannouncementweeksthanthemeanvolumeresidualduringthenon-reportperiod

3 See

Bamber,Barron&Stevens(2011)foramoredetailedliteraturereview.

Usingtwodifferenttests(aparametricchisquaretestandanonparametricbinomialtest),Morse(1981)a l s o investigatestradingvolumer e a c t i o n tointerimanda n n u a l earningsa

n n o u n c e m e n t s Similartop r i c e reaction,h e observessignificanta b n o r m a l tradingvolumeduringfourdayssurroundingquarterlyearningsrelease

Asd i s c u s s e d above,C h e u n g & S a m i ( 2 0 0 0 ) extendM o r s e ’ s study.Theya l s o f i

n d substantialvolumereactionsaroundearningsannouncementsdateforbluechipstocksportfolioaswellasnonbluechipstocksoneinthecontextofHongKong

2.4.2 Liquidity,informationasymmetryandearningsannouncements

Boththeoreticalandempiricalstudies haveexaminedliquidity andinformationa s y m m

e t r y surroundingearningsannouncements.Kim& Verrecchia( 1 9 9 4 ) s u g g e s t thattheremaybemoreinformationasymmetryatthetimeofanannouncementthaninn o n announcementperiods

duetothedifferentabilityofprocessingpublicinformationo f traders.Asaresult,itimpliesthatbid-

askspreadsincrease,suggestingthatmarketl i q u i d i t y decreasesatthetimeofanearningsannouncement

Therearealotofempiricalpapersstudyingtheimpactofearningsannouncementsonl i q u i d

i t y andinformationasymmetry.Nevertheless,findingsf r o m thesestudiesa r e mixed.SeeMorse&Ushman(1983),Venkatesh&Chiang(1986),Lee,Mucklow&R e a d y (1993),Krinsky&Lee(1996),Yohn(1998),Gajewski(1999),Acker,StalkerandTonks( 2 0 0

announcementisannouncedpriortoanotherannouncementsinthirtydays,secondannouncement–

announcementfollowedthefirstannouncementbyatleasttendaysandnomo r e thanthirtydays.Theresultsfindan

increaseininformationasymmetryonlybeforethesecondannouncementandalmostn o increasebeforethejointandfirstannouncement.

Lee,Mucklow&Ready(1993)studyasampleof230NYSEfirms,coveringperiodJ a n u a

r y 4toDec emb er 30in1988, andusing i n t r a d a y data.Theyofferthatspreads widenanddepthsfallbeforequarterlyearningsannouncements.Inaddition,increasedspreadsareobservedduringandaftertheannouncement

Similarlyto

Lee,Mucklow&Ready(1993),Krinsky&Lee(1996)showtheimpactofearningsannouncementsonthreecomponentsofbid-askspread:

(1)adverseselectioncostsincreasesubstantiallybeforeandaftertheannouncements,(2)inventoryholdingcomponentislowerduringeventandpredisclosureperiod,

1994.Theyobservespreadstarttonarrow15daysbeforeanearningsannouncement,andnarrowfurtherbytheendo f theannouncementday.Consistentwiththef i n d i n g s o f Acker,StalkerandTonks(2002),O t a g a w a ( 2 0 0 3 ) alsof i n d s e v i d e n c e thatt h e r e arel a r g e decreasesindailybid-

askspreadsandslightincreasesindailyd e p t h duringtheannouncementperiodandtheperiodjustafterreleasingquarterlyearningsinJapan

Incontrast,Ranaldo(2003)conductsadetailed analysisofmarketbehaviouraround real-

timenews releasear rival forasampleof30liquidst o cks onParisBourse.T h e resultindicatesthatthespreadistighterand themarketdepth is thick,especiallyinfewminutesaroundnewsreleasearrival.Italsodocumentsadecreaseinadverseselectioncostaroundthepublicinformationdisclosure

2.4.3 Volatilityandearningsannouncements

Employingintradaydata,Krinsky&Lee(1996)findthatvolatilityincreasebeforeandfollowingquarterlyearningsannouncementsinthecontextofUnitedStates

Acker(2002)examinesvolatilityincreasesfollowingannualearningsannouncementsbyasampleof379announcementsinUK’sFTSE100overperiodNovember1989andOctober1996.Sixtyfirmsinthesamplehaveoptionquotedontheirshares.Basedonthesignofearningsurpriseandthestandarddeviationoffirm’sreportedEPSchanges,theearningsannouncementsaresplitintoportfolios:goodnewsandbadnews,easy-to-interpretanddifficult-to-

interpret Heappliesimpliedstandardd ev i a t i o n s byoptionspricestomeasurevolatilityofstockprice.Theresultsreportthatthevolatilityreactionstoeasy-to-

interpretandgoodn e w s a n n o u n c e m e n t s areh i g h e s t o n thedayofannouncements.F o

r

difficult-to-interpretandbadn e w s portfolios,thev o l a t i l i t y reactionsa r e lowerthang o o d n e w s a n

n o u n c e m e n t s onthedayofa n n o u n c e m e n t s Moreover,ther e a c t i o n s tobadn e

w s alsoaredelayedu n t i l thefollowingday.Hearguedt h a t thed e l a y s ofbadn e w s mayreflectmarketu n c e r t a i n t y abouttheimplicationsofthenews

Indespiteofraisedconcernaboutthedecreaseofinformativeofearningsinformation,Landsman& Maydew( 2 0 0 2 ) r e p o r t e v i d e n c e o f anincreaseovertimeint h e informativenesso

fq u ar t e r l y earningsannouncements inthepastthreedecadess i n ce thestudyofBeaver(

1 9 6 8 ) , asmeasuredbyabnormaltradingvolumeandabnormalvolatility

2.5 InformationdisclosureregulationonlistedfirminVietnam

CircularNo09/2010/TT-BTCofTheMinistryofFinancedated 15January2010onDisclosureo f Informationo n t

h e securitiesmarketregulatea standardo n d i s c l o s u r e reportingforlistedf i r m s Inp a r t i

c u l a r , listedfirmsinVietnamh a v e obligationstodiscloseregulatedinformationt h at involveperiodicaldisclosureofinformation,e x t r a o r d i n a r y one,anddisclosureofi n f o

r m a t i o n o n requestf r o m theS S C o r S t o c k Exchange.SSCalsoencouragepubliccompanyandlistedfirmstoannouncevoluntarydisclosurerelatedtofirm’sactivitiesandperformances

1 Annualfinancialstatements

Annualfinancialstatementsmustbeauditedbyapprovedauditingfirmswhichsatisfiespracticingconditions inaccordancewith regulationsoftheMinistryofFinance Thedateofcompletionofannualfinancialstatementsshallbenolaterthan90daysfromtheendoffiscalyear.Within10daysfromexpiryofthedateforcompletionofannualfinancialstatements,listedfirmsmust presenttheirannualauditedfinancial statementstoSSC,Stock Exchange.Inaddition,

listedfirmmustpublishthefulltextoftheannualauditedreport in1editionofanewspaperpublishednationwideaccompanied bythewebsiteaddresswherethefinancialstatementsareprovided,inordertoenableinvestorstorefertosuchstatements

Disclosedannualfinancialstatementscomprisebalancesheet,incomestatement,cashflowstatement,andnotestothefinancialstatements.Inthecasewherealistedfirmistheparentcompanyo f a n o t h e r institution,disclosureo f a n n u a l f i n a n c i a l s t a t e m e n t s shalli n c l u

d e thef i n a n c i a l statementso f thep a r e n t c o m p a n y aswellasconsolidatedfinancialstatements

2 Quarterlyfinancialstatements

Listedfirmsmustprovidetheirquarterlyf i n a n c i a l statementstoSSCandStockExchangewithin2 5 daysf r o m t h e endo f a quarter.Ifthelistedfirmisthep a r e n t c o m p a n y whichisrequiredtoprepareconsolidatedfinancialstatements,theperiodfordisclosureo f informations h a l l b e 5 0 daysa f t e r theendo f thequarter.Ina d d i t i o n , listedfirmshavetopublishthef u l l t e x t o f q u a r t e r l y f i n a n c i a l statementso n t h e i r websites

Quarterlyf i n a n c i a l statementsi n c l u d e b a l a n c e sheet,incomestatement,cashflowstatement,andnotestothefinancialstatements.Ifalistingfirmhassubsidiarycompanies,itmustsubmitbothquarterlyfinancialstatementsoftheparentcompanyandconsolidatedfinancialstatementstotheSSCandStockExchange

Ifthep r o f i t afterc o r p o r a t e incometaxstatedinther e p o r t o n resultsofb u s i n e s soperationasbetweenthe

reportingperiodandthesamereportingperiodofthepreviousyearfluctuates10%ormore,thenthelistedfirmmustexplainthereasonsleadingtosuchunusualfluctuationinitsquarterlyfinancialstatements

Semi-annualf i n a n c i a l statementsmustb e disclosedontheinformationdisclosuremediaoftheSSCandSEandonthewebsiteoflisted firms

Inordertoenhancemoretransparencyandenforceablestockmarket,StateSecuritiesCommissionintendstoissueanewcircularreplacedCircularNo09/2010/TT-BTCinnextyear.2.6 Summary

Insummary,thei s s u e marketr ea ct i o n s toearningsa n n o u n c e m e n t s havebeendiscoveredinmanya s p e c t s o f marketsince1 9 6 0 s Itcanb e seenthatvoluminousstudiesf o c u s o

n developedmarkets u c h asU S , UKando t h e r d e v e l o p e d c o u n t r i e s Thereareveryfewstudiesexaminedtheimpactofearningsannouncementsinemergingmarket,e s p e c i a l

l y inVietnam.Trần(2010)investigatesthee f f i c i e n c y ofstockmarkettoinformationinVietnam.Sheexaminespricebehaviourofthreelistedfirms:STB,VNM,andFPT todividendannouncements.Obviously, th er e islackofempiricalevidenceoninformationaleffectinthecontextofVietnam.Thismotivatesustoconductthisstudytoinvestigatethea s s o c i a t i o n

b e t w e e n stockpriceanda n n u a l earningsannouncementsinVietnamstockmarket

CHAPTER3:D A T A ANDMETHODOLOGY

Basedontheresearchobjectives,researchquestionsandscopeinthefirstchapter,andliteraturereviewinchapter2,chapter3mentionsdetaileddatainthesample,researchmethodologyappliedinthethesisaswellasdevelopmentofhypotheses

3.1 Data

3.1.1 Sampleselection

Vietnamhast w o stockexchanges:HoC h i MinhStockExchangeandHaN o i StockExchange.Forthisstudy,wechoosefirmslistedonHOSEbecauseHOSEw a s setu p firstandhasbeena four– yearl o n g e r historybeforeHaN o i StockExchange

Thestudyfocusesonannualearningsannouncementsoflistedfirmsfortwofiscalyears2009–2010.Thesampleselection

includesfirmsthathavebeenlistedontheHOSEthrough2008to2011inclusive.Weexcludefinancialcompanies,suchasbanks,insurancefirms,fundsandfinancialfirmsinthethesisbecausetheircharacteristicsaredifferent.Wealsorequirefirmsthathavenomissingdataandalistinghistorylongerthan270tradingdaysbeforeearningsannouncements.Thintradingp r o b l e m mayc a u s e misspecificationo f statisticalt e s t s ( C o w a n &Sergeant,1996).Thus,weremovefromthesamplestocksthatdonottradeforatleast80%ofthedaysineithertheeventorestimationperiod

Accordingtotheselectioncriteria,weremoveallunsatisfiedearningsannouncements.Wehavea f i n a l sampleof211annualearningsa n n o u n c e m e n t s involving109listedfirms.Thedetailsoffirmsaregiven intheappendix

3.1.2 Datacollection

Wedefineannualearningsannouncementsdate(eventdate)istheearliestdateonwhichfourthquarterfinancialstatementispublicisedtotheHOSE.Firstly,thesefinancialstatementsarepublishedonthewebsiteofHOSE(www.hsx.vn).Then,

financialstatementsarepublicisedtoDailymarketreviewbulletinofHOSE.Iftheannouncementsa r e d i s c l o s e d o n SaturdayandSunday,w e ’ l l employthen e x t tradingdayastheannouncementdate.

dr e a l estate;wholetradeandr e t a i l t r a d e ; agriculture,forestryandfisheries;transportationandwarehousing;electricitygenerationanddistribution.Thehighestpercentageb e l o n

g s tomanufacturingwith48.62%.O t h e r s e c t o r s takea smallpercentageinoursample.3.2 Methodology

3.2.1 Descriptivestatistics

Weprovideadescriptivestatisticsofsomevariablesbeforeconductingeventstudymethod.Thedescriptivestatisticsistod e s c r i b e differentf l u c t u a t i o n s o f stockprice,stockreturn,andmarketvaluebyyearandwholesample.Accordingtothe

( 1 9 6 9 )5.Thee v e n t o f interestisa n n u a l earningsannouncementsoflistedfirmsontheHOSE.

Definitionofeventwindowandestimationwindow

Aneventwindowisdefinedtocapturetheeffectofannualearningsannouncementso n stockprice.Ane s t i m a t i o n w i n d o w isusedtoestimateparametersofordinaryleast-squaresmarketmodelregression

Wesettheeventwindowat20tradingdaysbeforeand20tradingdaysaftertheearnings

a n n o u n c e m e n t date.Thea n n o u n c e m e n t dateissetday0 E s t i m a t i o n periodisdefined250tradingdaysprecedingtheeventwindow,fromday-270today-21relativetotheannouncementday(Brown&Warner1985;Corrado2011;M a c K i n

adjustedm o d e l , thec a p i t a l

assetspricingmodel(CAPM),Fama-

Frenchthreefactormodel.Inthisstudy,weuseordinaryleast-squaresmarketmodelforestimationofnormalreturnbecauseitiswidelyusedinempiricalresearch6

 Rmtdenotesthemarketreturnondayt.RmtiscalculatedwithformulaRmt=ln(It/I

t-1)whereI isthevalueweightedi n d e x o f theHoC h i MinhStockExchange

 aandregressioncoefficient.Estimatesofiandþiareconstantintercept a

iþ iaret a k e n f r o m theOLSmarketm

20,20).Theaverageabnormalreturn(AAR)foranydayiscomputedby:

6 According

toBrown&Warner(1985),OLSmarketmodelhassimilarpowerasothersophisticatedmodels.

Wefollowt-statisticprocedureo f B r o w n andW a r n e r (1985)toteststatisticalsignificanceo f A

ARt.Thisprocedureassumest h a t abnormalreturnsa r e independentacrosssecurities.Thet-statisticsforanyeventdaytiscalculated:

t−statisticsAAR

AARtƒ

VarAAR

Wechoosedifferent

intervalssurroundingannouncementstocomputeCAARs,soastofullycapturetheearnings

announcementseffects,suchas: