Empirical study of post-earnings announcement anomaly in Singapore

• Main Authors: Mohamed Rafi Mar, Tan, Boon Hiong, Tan, Justin Hsin-Ka
• Other Authors: Gillian Yeo
• Format: Final Year Project
• Language: English
• Published: 2015
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/63009
• Institution: Nanyang Technological University

The focus of this research entitled Empirical Study of Post-Earning" Announcement Anomaly in Singapore is to extend the findings of Foster, Olsen and Shevlin (1984) to the Singapore stock market. This pioneer study is undertaken to provide an insight of the existence of post-earnings announcement anomaly and its implications for managers, investors and security analysts. The empirical study covers a period of 121 trading days for each company in a particular year. A total of 57 firms over the period 1989-1991 is covered in this study. In this study, the cumulative abnormal return (CAR) is used as an index to measure the extent and magnitude of post-earnings announcement anomaly. If earnings releases cause a revision in security prices and correspondingly, a revision of security returns, the CAR will capture such behaviour. A detailed analysis over the three-year period yielded the following results. The post-earnings announcement anomaly was found most conclusively in the 1991 findings, where there was a positive correlation between the sign of the accounting earnings change and the sign of the security price change. Also, within the years, the findings were most conclusive over the time periods [1,20] instead of [1,60]. From the empirical results, we identified six implications of post-earnings announcement anomaly. They are as follows: 1. The theory of Efficient Market Hypothesis does not hold. 2. Information content in the year-end results is minimal. 3. From point two, security analysts need to focus more on alternative competing information sources. 4. Trading strategies can be formulated for investors. 5. There is adequate corporate disclosure policy to the market via alternative information sources, rather than year-end results. 6. Managers may be motivated to practise income smoothing behaviours. In conclusion, the post-earnings announcement anomaly has implications for the capital market in Singapore and more research needs to be conducted to achieve a greater understanding.