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Université Libre de Bruxelles – Solvay Business School – Centre Emile Bernheim ULB CP145/1 50, Av. F.D. Roosevelt 1050 Bruxelles - BELGIUM Centre Emile Bernheim Research Institute in Management Sciences WORKING PAPER: WP-CEB 03/005 The effect of earnings release for Belgian listed companies Marie-Paule LAURENT1 Aspirant FNRS-Bernheim Ecole de Commerce Solvay – Centre Emile Bernheim Université Libre de Bruxelles Abstract The purpose of this article is to examine whether the legal obligation for Belgian listed companies to release annually their earnings is still useful in markets where the quantity of information already present is important. A sample of 108 earnings releases between January 1997 and June 1999 by Belgian companies listed on the First Market of the Brussels Stock Exchange has been analysed. The empirical study reveals that the earnings disclosure presents an informational content as the stock price reacts significantly at the day of the release. Furthermore, the reaction of the market is different depending on whether the earnings surprise – the nonanticipated part – is positive or negative. The analysts’ consensus is used as a proxy for markets’ expectation of earnings. Two main results can be drawn from the analysis: first the market anticipates partially the level of earnings surprises and secondly it overreacts at the disclosure date and corrects the week after. Moreover, the market reacts less negatively for bad news and positive earnings surprises lead to huge positive reactions. This shows that on average investors seem to be less optimistic than analysts are. Consequently, the legislation on periodic information for Belgian companies is useful for financial markets because the information released is not already incorporated in stock prices and thus the earnings disclosure let the investors adjust their anticipations for future corporate cash flows. 1 I would like to thank A. Farber and A. Szafarz for their useful comments. 50, avenue F. Roosevelt CP 145 / 1 – 1050 Bruxelles Mail: [email protected] Page 1 1. Introduction Since December 1998, Belgian companies listed on the First Market of the Brussels Stock Exchange have to publish a press release about their earnings. According to studies realised by the Banking and Finance Commission (1998; 1999), such a publication was already made on a voluntary basis by around two third of the listed companies before 1999. The introduction of this legal obligation presents a real interest only if the earnings anno uncement can be associated to a sensitive information possibly leading to a market reaction. The aim of this study is to determine to what extent there is new information in the earnings announced. This is not obvious since the global level of corporate communication for listed companies is relatively high. The general scope of this study is found in the market efficiency research, which begins with Fama in 1970. In an efficient market, stock prices reflect all available information. Therefore, every news implies a reaction of the price that adjusts to integrate the non-anticipated part of the information. This reaction can be studied by observing the abnormal returns around the announcement date. The empirical analysis has been realised on Belgian companies listed on the Brussels Stock Exchange. A sample of 108 earnings announcement relative to fiscal years 1996, 1997 and 1998 has been examined to determine whether in Belgium the annual earnings announcement brings a non-anticipated information to the markets and how long it takes to be integrated in the stock price. The first part of this article is a review of the literature concerned with the link between earnings announcement and market reaction. The second part displays the empirical study which is composed first by the research of the existence of an informational content of the announcement and second by the analysis of the level of price reaction related to the level of non-anticipated earnings. A conclusion about the usefulness of the new legislation on annual press releases ends this article. Page 2 2. Literature Review The intrinsic value of a stock is generally calculated on the basis of the expected future cash flows of the company. As the corporate earnings are a crucial factor in the elaboration of investors’ anticipations, it is also important for the stock evaluation [Easton (1985)]. Therefore, earnings announcement presents a major information that should, in an efficient market, imply a market reaction. In the first study on the existence of an informational content of earnings announcement, Beaver (1968) shows that prices react significantly during the announcement week and that transactions volume increases during the same period. According to Bamber and Cheon (1995), the reactions on prices and on volumes tally with different aspects of information assimilation: the price reaction is linked to the surprise, the non-expected part of the information, and the volume depends on the investors’ interpretation. An informational content exists if at least one type of reaction can be observed. In its study of the French Stock Market, Gajewski (1999) shows that a volume reaction also exists on smaller stock markets. The generally accepted explanation of the diverse impacts of the earnings announcement is that investors use these announcements to re-evaluate the future corporate cash flows and thus stock prices adjust conseque ntly. The main element of this informational content is the non-expected part of the earnings. According to Ball and Brown (1968), a link between the sign of the earnings surprise and the direction of the price reaction exists. Similarly, the study of Redleman, Jones and Latané (1982) indicates that markets react positively when companies reveal higher earnings than expected and penalise companies presenting negative earnings surprises. This relation is also verified in absolute value: the higher the surprise, the greater the reaction [Beaver, Clarke and Wright (1979)]. In the specific case of very small surprises, Kinney, Burgstahler and Martin (1999) have shown the existence at the announcement date of a statistically significant linear relation between returns and earnings surprises. However one of the issues of this research is the estimation of market’s expectations, which are essential values but not directly observable. Brown’s synthesis (1997) of all estimation’s methods for market’s earnings expectation classes them into two groups. The first is on the statistical prediction methods like AR(1) or random walk with trend. Better predictions can be obtained if one includes other factors as stock prices or accountant rates of return. The second group stems from observable predictions like analysts’ earnings consensus. The advantage of the analysts’ predictions can be explained by the quantity of information analysts have access to (private information let them better distinguish between permanent and temporary effects) and by the timing of their predictions (revisions at the light of new Page 3 information are more regular). Nevertheless, investors’ uncertainty cannot be captured by the dispersion observed between analysts’ predictions [Abarbanell, Lanen and Verrechia (1995)]. Finally, an alternative method presented by Maddala and Nimalendran (1995) is the non-observed component approach that uses earnings surprises as a non-observed explicative variable in different equations. Moreover, the announcement timing is also an explicative factor of market reactions. In fact, markets anticipate the delay between the end of the fiscal year and the announcement date because it generally remains constant. According to Trueman (1990), a longer delay in the announcement is interpreted by the market as the fact that the company takes time to hide bad corporate earnings, this implying a decrease of the stock price. The initial study of the pre-announcement period [Ball and Brown (1968)] has shown that stock pric es largely anticipate the announced earnings. Corporate financial communication is a first explicative factor of this market’s anticipation. In fact, earnings surprises, and thus price reactions, are less important for big companies that generally have a more developed financial communication system [Atiase (1985)]. Similarly, Dempsey (1989) and Alexander (1992) have noticed that the informative value of the announcement decreases with the number of analysts following the stock because indirect information is then more important. The second source of prior market information is insider trading. Kabir and Vermaelen (1996) looked at the introduction in 1987 of a regulation in the Netherlands that forbids insiders to make transactions during the 8 weeks prior the earnings announcement. They found a decrease in the volume usually observed during the weeks preceding the announcement and a slower (quicker) adjustment of the price in case of good (bad) surprise. Also in the United States, earnings announcements seem to be more informative after the vote of the ITSFEA 2 [Garfinkel (1997)]. This tends to show that insider trading implies an integration of private information in stock prices before the public announcement date. Ball and Brown (1968) have also studied the post-announcement period. They have shown the existence of a Post Earning Announcement Drift. This drift is not the result of a bad specification of the risk premium [Bernard and Thomas (1989); Thomas (2000)] but comes from a certain market ine fficiency due first to transaction costs [Bushan (1994)] and secondly to a late and partial assimilation of the information. This late and partial assimilation has been shown by the existence of a correlation between the quarterly earnings and the abnorma l return during the four following quarters [Freedman and Tse (1989); Bernard and Thomas (1990)]. 2 ITSFEA: Insider Trading and Securities Fraud Enforcement Act (passed at the Congress in 1988) Page 4 Thomas (2000) explains this assimilation delay as a market under-reaction to fundamental signals concerning future earnings. There will thus be a predictive adjustment during the next quarter if the signal is confirmed. Most of the empirical studies about earnings announcements and their impact on financial markets have been made on American Stock Exchanges. Very few studies focus on European Stock Exchange. These markets present however interesting characteristics like smaller companies, less diversification or less volume that might lead to different results. That is the reason why this empirical analysis concentrates on the Belgian Stock Exchange. 3. Empirical Study 3.1. Sample choice and presentation of the data The empirical study of earnings announcement impact on stock prices has been made on a sample of 108 earnings announcements made by Belgian companies listed on the First Market of the Brussels Stock Exchange. Companies have been chosen on the basis of three criteria: (1) stock liquidity, (2) knowledge of the announcement date and (3) analysts’ following. (1) The stock price evolution is generally interpreted as a change in the mean of market’s expectation with any individual market actor being able to significantly influence prices. Stock liquidity is a guarantee of absence of individual effects on markets. The sample selection has thus been made among companies listed on the Term Market of Brussels Stock Exchange. (2) Analysing the information impact on stock prices with daily data necessitates the knowledge of the precise day of the announcement to the market. In Belgium, the earnings announcement by press release is compulsory since the beginning of 1999 but this practice was already of large application before. In this study, the announcement date is defined as the press release publication date. The sample choice has been made under the condition that the announcement date found in the BFC report 3 was the same than the one found in the JCF database 4 . (3) A market expectation measure for earnings is necessary to analyse price reaction. The last selection criterion is thus the availability of analysts’ consensus in the JCF database. 3 Banking and Finance Commission, Etudes et documents n°4 (May 1998) - Etudes et documents n°8 (May 1999) - Etudes et documents n°13 (July 2000). 4 Jacques Chahine Finance database contains information about European listed companies: announcement dates, analysts’ predictions on earnings, cash flows, net assets, debts, … during the last five years (Jacques Chahine Finance, Paris). Page 5 Hence a sample of 44 companies for a total of 108 announcements has been constituted. The announcements are equally distributed over the three analysed fiscal year ends. However, the proportion of companies announcing their earnings during the first two months after fiscal year end is more important in the sample than in the global population. It has to be noticed that even with a small percentage of companies (between 25% and 30% of total listed companies), the sample covers 13 activity sectors and presents approximately 83% of the capitalisation and 85% of the volume of the Brussels Stock Exchange during the year 1998 5 . Table 1: Distribution of the announcements sample January 1997 January 1998 January 1999 [Fiscal year 1996] [Fiscal year 1997] [Fiscal year 1998] Belgian companies listed on the Brussels Stock Exchange Criterion (1): stock liquidity Criterion (2): announcement date Criterion (3): analysts' following Number of announcements kept 136 131 128 TOTAL 395 < 83 > < 80 > < 73 > < 236 > 53 < 14 > 39 <5> 34 51 < 14 > 37 <2> 35 55 < 16 > 39 <0> 39 159 9 [27%] 22 [65%] 3 [8%] 7 [20%] 26 [74%] 2 [6%] 10 [26%] 27 [70%] 2 [4%] < 44 > 115 <7> 108 Announcement month January-February March April 26 [24%] 75 [70%] 7 [6%] 3.2. Existence of an informational content The first part of the empirical study concerns the existence of an informational content of earnings announcements. The analysis concentrates on the possible price reaction and on its relative intensity around the announcement date. The study period covers 40 markets opening days centred on the announcement date (20 days before and 20 days after the announcement). The price impact is measured by the non-expected part of the stock return, the abnormal return: ARit = Rit − E [ Rit ] where ARit is the abnormal return for stock i at period t; Rit is the return of stock i at period t and E[Rit] is the expected return of stock i at period t. In the present case, the abnormal return is defined by the “market adjusted return”: ARit = Rit − Rtm where Rtm is the market return at period t. It is also possible to use the traditional market model to define the expected return. However, the coefficient of 5 A more complete table can be found in the appendix. Page 6 determination is generally very small with daily data. Brown and Warner (1985) have shown that alternative measures of abnormal return, as the one used here, present a similar ability to detect abnormal performance. The study of the price movement around the announcement date cannot be made for all time series separately because a great amount of observed price changes are due to information non- linked to the announcement. The consequences of these joined events can however be significantly eliminated by the use of inter-series mean. As the abnormal return are centred on a specific event –earnings announcement –, the return mean should principally reflect the announcement effect and all other information not linked to the earnings should be reduced by this mean. The first step of this analysis is about the significance of the abnormal return. The hypothesis of zero abnormal return is tested with the G statistic, which allows under the null hypothesis a standard normal distribution. ASARt G= st N Where N is the number of observations, ASARt the average standardised abnormal return at period t, st² the inter-company variance of abnormal returns at time t and si the standard error of the abnormal returns of stock i during the non announcement period. ASAR t = 1 N N ARit ∑ si i =1 s t2 = 1 N ( ARit − AARt ) 2 ∑ N − 1 i=1 AARt = Table 2: Test statistic around the announcement date Days Test statistic -5 -4 -3 -2 -1 0 1 2 3 4 -0,259 0,38 -0,587 0,139 0,157 1,835 4,082 0,173 -0,812 -0,575 Level 95%* 90%** Reaction direction n.s. n.s. n.s. n.s. n.s. n.s. sign. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. sign. sign. n.s. n.s. n.s. + + + + + + - n.s. : not significant– sign : significant * The test statistic is compared to 1,960 ** The test statistic is compared to 1,645 Page 7 1 N N ∑ AR i =1 it Table 2 gives the test results around the announcement date. Abno rmal returns appear to be significantly different from zero the day after the announcement and to a smaller extend the announcement day. This shift of one day can be explained by the fact that the communication is usually made at the end of the day. The price impact can thus only be seen at market opening, the day after. Nevertheless, it can seem astonishing that the observed reaction is positive and statistically significant when the sample is studied globally because the individual reaction can go either ways. We tend in the next chapter to explain this fact by analysing the earnings surprise distribution and the particular reaction it induces. The second step of this study is about the relative intensity of the reaction measured by statistic Uit defined as: U it = ARit2 si2 A comparison of the reaction intensity between two periods, without taking into account the sign, is made possible by the use of this statistic. A ratio superior (inferior) to 1 shows that the abnormal return is superior (inferior) to the normal and thus that the stock volatility has increased (decreased). In the graph presenting the inter-company mean of the Ut statistic, an important reaction at the announcement date and during the two next days is observed. On the other hand, small reactions are observed during the two weeks prior the announcement date. Consequently, markets seem to be in a waiting situation before the earnings announcement. Nevertheless, stock prices react in a significant way at the announcement. Earnings seem thus to be announced at a known date and to present a new information to the market. Graph 1: Inter-company mean of the daily U statistics 3,0 2,5 2,0 1,5 1,0 0,5 0,0 -10 - 9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 Page 8 3 4 5 6 7 8 9 10 3.3. Price reaction according to earnings surprise The second part of the research consists in determining to what extent the earnings surprise, defined as the part of the announced earnings non-expected by the market, is at the basis of the observed reaction. The main difficulty of this analysis lies in the choice of the investors’ prediction model. The surprise measure chosen here is the difference, in relative term, of the analysts’ consensus post-announcement and the consensus pre-announcement: Cti+1 − Cti−1 SURPRISE = Cti−1 i where SURPRISEi is the earnings surprise of company i and Cti is the analysts’ consensus at time t for company i. The observed earnings surprises are grouped by size into three classes: surprises superior to 5%, inferior to -5%, and between these two limits. In the sample, more than half of the announcements presents a small surprise and the significant surprises are relatively similar in size. Moreover, it seems that the analysts tend to underestimate earnings, as there are more good surprises than bad ones. Table 3: Earnings surprises classed by size Proportion of observations Median of the size within a class Superior to 5 % 29 % 0,1165 Between - 5 % et 5 % 52 % 0,0015 Inferior to - 5% 19 % -0,1031 The impact study is done at three different periods and concentrates on the abnormal return of portfolios constructed by the 5% criterion. The portfolio SUP (INF) is composed by stocks whose earnings surprise is superior to 5% (inferior to -5%) and the portfolio ENT is composed by the others. Abnormal returns cumulated by product correspond to the abnormal gain of a portfolio for which all intermediary gain has been reinvested in this same portfolio. Observing a different evolution for the three portfolios tends to show that earnings surprise is a differentiation factor recognised by the market. Announcement period Table 4 shows that, whatever the analysed portfolio, stock price reaction is significant only at the announcement date and the day after. There are no significant values the week before or at the end of the announcement week. Moreover, abnormal returns are more important when the earnings surprise is substantial and positive. Page 9 Markets’ reaction appears to be quick and limited to the earnings announcement date. However, whereas price reaction for “good” surprises has the expected sign (a positive reaction is associated to a good surprise), the absence of price reaction for “bad” surprises is counterintuitive. It seems that the analysts are more optimist than markets: a “bad” surprise according to the analysts has already been anticipated by the market, thus the price doesn’t react to the announcement; similarly, a “good” surprise implies a more important reaction because it wasn’t anticipated at all. This asymmetric reaction explains the reason why the global abnormal return was significant in the first part of this study. Table 4: Portfolios’ test statistics around the announcement date -5 -4 -3 -2 -1 0 1 2 3 4 SUP* Test statistic ENT* INF* SUP* -0,355 0,217 -2,444 1,549 0,580 1,870 2,960 0,768 -0,613 0,821 0,168 0,289 0,979 0,287 -0,580 0,728 1,924 -0,508 -1,639 -1,423 0,321 0,575 0,059 0,319 0,911 0,253 0,731 -0,591 0,450 0,232 n.s. n.s. sign.*** n.s. n.s. sign. sign. n.s. n.s. n.s. Level of 90%** ENT* INF* n.s. n.s. n.s. n.s. n.s. n.s. sign. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s. n.s: not significant – sign.: significant *The composition of the portfolios is done on the basis of the earnings surprise size. SUP is the portfolio with stocks whose earnings surprise is superior to 5%; INF is the portfolio with stocks whose earnings surprise is inferior to -5% and ENT is the portfolio with stocks whose earnings surprise is between 5% and 5%. **The test statistic is compared to 1,645. ***Outlier Pre-announcement period The relative movement of the three portfolios during the 20 days preceding the announcement reveals the evolution of markets’ expectations. Graph 2 shows that the prior evolution of the portfolios and the final surprise are linked: good news portfolios present cumulative returns that are positive and largely superior to other portfolios; an inverse evolution is observed for bad surprises portfolios. These differentiated evolutions indicate that markets expect part of the earnings surprise as it is measured here. This phenomenon can be explained by the arrival during the month preceding the announcement of information that is directly influencing the stock price but not changing our surprise measure, which is defined as a monthly difference. Page 10 Graph 2: Abnormal returns cumulated by product 1,12 1,10 1,08 1,06 1,04 1,02 1,00 0,98 0,96 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 SUP 2 ENT 4 6 8 10 12 14 16 18 INF Post-announcement period Graph 3 presents the evolution of the three portfolios beginning the third day after the announcement (the portfolios are composed at the end of day 2). An important increase of the “bad news” portfolio and a decrease of the “good news” portfolio are identifiable. This evolution difference tends to show that the surprise, as measured here, still contains information after the first reaction. However, the sign of the reaction indicates that it is rather an adjustment than a late assimilation: markets have reacted too much at the announcement and must go back. In one case, good news has been evaluated too favourably and in the second case, the future seems better for companies judged too severely by investors because of their bad earnings surprises. Graph 3: Post-announcement evolution of the cumulative abnormal returns 1,03 1,02 1,01 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 0,99 0,98 SUP ENT Page 11 INF 4. Conclusion This article looks into the Belgian Stock Exchange and into its reaction to earnings announcements. Since December 1998, Belgian companies listed at the Brussels Stock Exchange are legally obliged to publish a press release about their annual corporate earnings. This was previously already a wide practice. The objective of this research is to determine to what extent, despite all the information available on the market, annual earnings announcement brings really new information to the market. Therefore, an event study has been made on a sample of 108 earnings announcements made between January 1997 and June 1999 by Belgian companies listed on the First Market on the Brussels Stock Exchange. The empirical analysis has been divided into two parts: the existence of a significant market reaction and the link between observed reaction and earnings surprise. The first part of the study has shown the presence of a significant reaction at the earnings announcement date. It seems consequently that the announcement implies a change of future investors’ expectations. There is thus an incorporation of this new information in stock prices. This attests an informatio nal content of earnings announcement. The second part of the study underscores a behavioural difference of portfolios created on the basis of earnings surprises. It thus seems that markets’ reaction can be at least partially explained by the level of the earnings surprise: a good surprise implies a positive price reaction and inversely. Moreover, diverse observations can be made at the light of the relative behaviour of the different portfolios during the pre-announcement and the post-announcement period. First analysts’ seem more optimistic than the markets. Then, part of the earnings information is already incorporated in the prices but the announcement remains informative. Finally, markets’ reaction is too high at the announcement date, consequently stock prices adjust after. Therefore, despite the important level of information on financial markets, earnings announcement brings new information that let investors adjust their anticipations. The new legislation on periodic information by Belgian companies is thus still useful for financial markets. Page 12 Bibliography • • • • • • • • • • • • • • • • • • Alexander J.C.; Jr. (1992), “Earnings Surprise, Market Efficiency, and Expectations”, Financial Review, 27(4), November, pp. 475-502. Abarbanell J.S., W.N. Lanen and R.E. Verrecchia (1995), “Analysts’ forecasts as proxies for investor beliefs in empirical research”, Journal of Accounting and Economics, 20, pp.31-60. Atiase R.K. (1985), “Predisclosure Information, Firm Capitalization, and Security Price Behavior Around Earnings Announcements”, Journal of Accounting Research, vol.23 n°1, Spring, pp.21-36. Ball R. and P. Brown (1968), “An Empirical Evaluation of Accounting Income Numbers”, Journal of Accounting Research, Autumn, pp.159-168. Bamber L.S. and Y.S. Cheon (1995), “Differential Price and Volume Reactions to Accounting Earnings Announcements”, The Accounting Review, vol.70 n°3, pp.417-441. Banking and Finance Commission, Etudes et documents n°4 (May 1998) - Etudes et documents n°8 (May 1999) - Etudes et documents n°13 (July 2000). Beaver W.H. (1968), “The Information Content of Annual Earnings Announcements”, Empirical Research in Accounting, Selected Studies, pp. 67-92. Beaver W.H., R. Clarke and W.F. Wright (1979), “The Association between Unsystematic Security Returns and the Magnitude of Earnings Forecast Errors”, Journal of Accounting Research, vol.17 n°2, Autumn, pp.316-340. Bernard V.L. and J.K. Thomas (1989), “Post Earnings Announcement Drift: Delayed Response or Risk Premium?”, Journal of Accounting Research, vol.27, suppl., pp.1-36. Bernard V.L. and J.K. Thomas (1990), “Evidence that Stock Prices do not Fully Reflect the Implications of Current Earnings for Future Earnings”, Journal of Accounting and Economics, 13, pp.305-340. Brown L.D. (1997), “Earnings Surprise Research: Synthesis and Perspectives”, Financial Analyst Journal, March/April, pp.13-19. Brown J. and J.B. Warner (1985), “Using Daily Stock Returns: The Case of Event Studies”, Journal of Financial Economics, 14, pp.3-31. Bushan R. (1994), “An Informational Efficiency Perspective on the Post-Earning Announcement Drift ”, Journal of Accounting and Economics, 18(1), July, pp. 45-65. Dempsey S.J. (1989), “Predisclosure Information Search Incentives, Analyst Following, and Earnings Announcement Price Response”, Accounting Review, vol.64 n°4, October, pages 748-57. Easton P.D. (1985), “Accounting Earnings and Security Valuation: Empirical Evidence of the Fundamental Links”, Journal of Accounting Research, vol.23 Supplement, pp.5482. Freeman R.N. and S. Tse (1989), “The Multiperiod Information Content of Accounting Earnings: Confirmations and Contradictions of Previous Earnings Reports”, Journal of Accounting Research, vol.27, suppl., pp.49-79. Gajewski J-F (1999), “Earnings Announcements, Asymmetric Information, Trades and Quotes”, European Financial Management, vol.5 n°3, pp. 411-423. Garfinkel J.A. (1997), “New evidence on the effects of federal regulations on insider trading: The Insider Trading and Securities Fraud Enforcement Act (ITSFEA)”, Journal of Corporate Finance, 3, pp.89-111. Page 13 • • • • • • Kabir R. and T. Vermaelen (1996), “Insider Trading Restrictions and the Stock Market: Evidence from the Amsterdam Stock Exchange”, European Economic Review, 40, pp.1591-1603. Kinney W., D.Burgstahler and R.Martin (1999), “The materiality of Earnings Surprise”, Unpublished Paper, July 1999. Maddala G.S. and M. Nimalendran (1995), “An unobserved component panel data model to study the effect of earnings surprises on stock prices, trading volumes, and spreads”, Journal of Econometrics, 68, pp.229-242. Rendleman R.J., C.P. Jones and H.A. Latané (1982), “Empirical anomalies based on unexpected earnings and the importance of risk adjustments”, Journal of Financial Economics, 10, pp.269-287. Thomas W.B. (2000), “A test of the market’s mispricing of domestic and foreign earnings”, Journal of Accounting and Economics, 28, pp.243-267. Trueman B. (1990), “Theories of Earnings-Announcement Timing”, Journal of Accounting and Economics, vol.13 n°3, October, pages 285-301. Page 14 Appendix: Appendix 1: Sample characteristics Activity sector* Number of companies Capitalisation Turnover in % (total of the Brussels Stock Exchange) Holdings Miscellaneous Services Buildings Chemicals Metal-Electro-Electronics Property Retailing Utilities Banks and Financial Services Insurance Miscellaneous Industries Non Ferrous Oil Total 10 7 3 3 3 3 3 3 2 2 2 1 1 6,60 1,48 3,36 16,59 27,45 14,43 2,12 0,53 2,17 0,36 4,39 0,58 2,63 10,92 1,48 4,37 10,30 20,60 17,13 3,67 0,59 2,69 1,40 6,40 0,44 4,33 43** 82,69 84,30 Source: Statistics 98 Brussels Stock Exchange, Brussels 1999. * Activity’s sector definition and companies’ classification are due to the Brussels Stock Exchange. ** One company of the sample (BBL) has been eradicated in July 1998, it is thus not in the descriptive statistic of the Brussels Stock Exchange at December 31st 1998. Appendix 2: Announcements sample Companies Ackermans Almanij BBL Barco Befimmo Bekaert Belcofi Brantano CBR CMB Cobepa Cofinimmo Dexia Belgium Creyf's Interim D'Ieteren Announcements 96-98 96-97-98 97 96-97-98 97-98 96-97-98 96-97-98 98 96-97-98 96-97-98 98 98 98 96-97-98 96-97-98 Companies Announcements Deceuninck Delhaize Le Lion Distrigaz Electrabel Electrafina Fortis GBL Générale de Belgique Générale de Banque Gevaert GIB Group Glaverbel Immobel KBC Koramic 96-97-98 96-97-98 96-97-98 96-97-98 96-97-98 96-97-98 96-98 96-97 96-97 96-97-98 96-97-98 96-97-98 96-97-98 96-97-98 96-97-98 Page 15 Companies Petrofina Quick Real Software Recticel Royale Belge Sofina Solvay Spector Systemat Telinfo Tessenderlo Tractebel Union Minière Van De Velde Announcements 96-97-98 96-97-98 98 96-97-98 96-97 97-98 96-97-98 96-97-98 98 96-97-98 96-97-98 96-97-98 96-98 97