Bechmann, Raaballe and Raahauge have examined Danish listed companies’ use of financial announcements from 2001 to 2004 and looked at how the market has reacted to these announcements. The background is the discussion as to whether different types of information from the listed companies are relevant and necessary including to what extent the equity market’s reactions are rational and sufficiently fast and precise.
Among the results it appears that an increasing number of listed companies publish quarterly reports; in 2001 it was 51 per cent, and in 2004 it was 73 per cent. The Copenhagen Stock Exchange generally recommends the use of quarterly reports, whereas quarterly reports are a requirement to be included in the plus segments. It is primarily companies in the KFX Index and the plus segments that publish three interim reports.
The stock price reactions to the financial announcements have been analysed in the first eight trading hours following the publication of an announcement. It turns out that the price adjustments on average are between 2 per cent and just under 6 per cent. If the stock price reaction had been measured with sign, the average reactions would be close to 0 according to the study. The authors emphasize that the size of the reaction depends on the type of announcement.
In respect of the KFX companies, the reaction is largest for the annual report, which contains the most information, with an average stock price reaction of 5.9 per cent. The stock price reaction for interim reports varies: For the Q1 report it is 3.5 per cent – this report also contains the least information, the reaction to the half-year report is 5.2 per cent on average, and the Q3 report is 4.4 per cent.
Results from the study show that the market has a reaction time of a couple of hours to one trading day in respect of financial announcements, which, according to the authors, is quite fast. The study also shows that listed companies do not leak information to parts of the market before the publication of financial statements.
Read the entire article ’The use of and the reaction to annual and interim reports on the Danish stock market’ in Focus no. 102 on the website of the Copenhagen Stock Exchange www.omxgroup.com. Questions to the authors may be put to the e-mail address: copenhagen@omxgroup.com until 2 September 2005.
*Note: Bechmann and Raahauge come from the Department of Finance, Copenhagen Business School, and Raaballe comes from the Department of Economics, Aarhus University.
