[PDF] AN EVALUATION OF MARKET RESPONSES TO CORPORATE

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AN EVALUATION OF MARKET RESPONSES TO CORPORATE

DISCLOSURES IN A CONTINUOUS DISCLOSURE ENVIRONMENT BY

HANQIAO LI

A thesis

submitted to the Victoria University of Wellington in fulfilment of the requirements for the degree of

Doctor of Philosophy

Victoria University of Wellington

2018
I

ACKNOWLEDGEMENTS

I would like to express my appreciation to everybody who has helped and supported me as I completed this PhD thesis. This includes my primary supervisor Dr Thu Phuong Truong and my secondary supervisor Ms Trish Keeper. Their comments and insights guided me throughout the long and many stages of the PhD work and helped me achieve the depth of understanding presented in the thesis. Phuong also gave me the opportunity to be a research assistant for her research projects, which has supported my life in New Zealand. I would also like to express my gratitude to other Professors who have helped me. In particular Professor Rachel Baskerville, as she introduced me to the VUW PhD programme when we met in China and supported me during my PhD study. Professor Tony van Zijl provided constructive advice on my research topic, and Professor Michael Bradbury provided valuable feedback on my PhD study at the AFAANZ symposium and conference. I also express my gratitude to Dr Rodney Dormer and the late Kevin Simpkins who gave me the opportunity to tutor in

ACCY111.

I would like to thank all my friends and colleagues at Victoria University of Wellington for the support and advice they have given me. This includes, but is not limited to Asma Jahan, Rubeena Tashfeen, Ryan Kerr, Hien Hoang, Kathleen Makale, Sendirella George, Clare Markham, Farzana Tanima and Matthew Sorola. To every other member of academic and PhD colleagues, who there are too many to include, I express thanks. I would like to thank the scholarships which I got from Victoria University of Wellington, the CSC Scholarship and the Victoria Doctoral Submission Scholarship. I would like to acknowledge the emotional support from my fiancée, Alexander McConnochie. Without this support I would not have made it to the end. Finally I would like to extend a special thank to my parents for their love when they raised me. Without their sacrifices I would not be where I am today. II

STATEMENT OF ORIGINALITY

I declare that the work presented in this thesis is my own original work carried out through School of Accounting and Commercial Law at Victoria University of Wellington. I completed my Thesis as a PhD student. I declare that the material of this thesis has not been submitted either in whole or in part for the award of any other degree and/or diploma at this or any other university. Any contribution made to the research by others, with whom I have worked at Victoria University of Wellington or elsewhere, is explicitly acknowledged. To the best of my knowledge, this thesis contains no material previously published or written by other persons or institutions except where due reference has been made. I declare that the intellectual content of this thesis is the product of my own work except the acknowledged assistance presentation.

Signature:

Date: III

ABSTRACT

Corporate disclosure has attracted the attention of researchers from the accounting and capital markets. Researchers have been trying to better understand how capital markets respond to corporate disclosures. This study explores the short- and the long- term market effects of corporate disclosures in a continuous disclosure environment. This study aims to find the answers to the following research questions. (1) How market (price/volume) sensitive is the information contained in each disclosure category in a continuous disclosure environment? (2) How quickly is the value-relevant information incorporated into share prices before the annual earnings announcement is released, and how can company announcements promote this timeliness of price discovery? Specifically, this study examines the extent to which the Australian share market reacts to new public information immediately after the information is released, and the impacts of announcement frequency as to different continuous disclosure categories on the timeliness of price discovery (also known as the speed of price discovery). Prior research has mostly concentrated on a single type of information event to examine the market consequences by monthly, weekly or daily data. Instead, by covering all public announcements and using tick (transaction) data to calculate intraday abnormal returns and abnormal trading volumes, this study examines which type of announcement has the largest immediate market responses, and compares the magnitude (with positive/negative signs) of market reactions to different announcement categories on the Australian Securities Exchange (ASX). This study is more attractive under the Australian Continuous Disclosure Regime (CDR) because of the classification system regarding the market-sensitive announcements. Whether or not an announcement is market- the announcement is released on the market. This study investigates how the market interprets IV the announcement, examining market sensitivity from both the share price and trading volume movements after the announcement is available to the market. In other words, to some extent, should react to, and this study reveals the announcement that the market does react to. Focusing on market-sensitive announcements, except for the ASX Query, the significant results show a positive association between announcement categories and intraday Cumulative Abnormal Returns (CARs). Share prices react the most to Progress Reports and to Asset Acquisition & Disposal, and the least to Periodic Reports and Issued Capital. Share price reactions to Distribution Announcements and Other are in the middle. There are at least two possible reasons for the different market reaction magnitudes. One is the information materiality nature: if one type of information is more important to investors than other information, this may cause higher abnormal returns on the market. The other is the information predictability: if there has been a lot of relevant information available in previous days or months, share prices could adjust to the information more smoothly. In terms of the trading volume reactions, intraday Abnormal Trading Volumes (ATVs) are observed after the release of Progress Reports, Asset Acquisition & Disposal, Issued Capital and Periodic Reports. After separating good and bad news subsamples, the results show that Progress Reports and Asset Acquisition & Disposal tend to indicate good signs to the market and cause larger trading volumes. Periodic Reports and Issued Capital could contain either good or bad news, but the trading volumes are driven by bad news. The results also reveal that company size is an important factor. Large companies tend to have relatively small market responses after information is released, which confirms that the larger companies are more stable. V This study also evaluates long-term market effects of corporate disclosures by examining the timeliness of price discovery (also known as the speed of price discovery). It is the timeliness with which the full value relevant information is priced over a year before the annual earnings announcement is released. Previous literature has revealed that earnings announcements convey information, because significant stock returns or increased trading volumes are observed around the time that earnings announcements are released. However, it has also been suggested that there are other more timely information sources available that contain essentially similar or even the same value-relevant information. By the time preliminary final reports become available to the market, any potential value-relevant information has been included in the share price. The CDR again provides an attractive environment to examine the impact of corporate disclosures on the timeliness of price discovery, because listed companies have to disclose to the market before any other media sources. This enables an exploration of the relationship between the timeliness and the frequency of continuous disclosures. If the CDR is efficient in keeping investors fully informed, there should be no stock price surprise after the earnings announcement is released. Given the importance of the Preliminary Final Reports to the timeliness metric and the fact that the immediate market reaction tests only cover announcements released during trading hours, this study investigates in depth the Preliminary Final Reports and finds some evidence that companies tend to release bad news after the market closes and/or on Fridays. In terms of the impacts of announcement frequency on the timeliness of price discovery, following the step quotesdbs_dbs42.pdfusesText_42

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