Portfolio test of earnings response coefficient in an asian share market

Abstract

Earnings response coefficient is recognised in the accounting literature as a valid measure of share revaluation effect arising from disclosures of accounting earnings. This article makes a modest contribution to this subject by estimating this coefficient for the first time using data from an Asian country. Using a randomisation procedure and pooling data into portfolios. reliable results on the magnitude of the earnings effect are identified and evaluated. For the cases where the re are no dividends dis closed, share price changes to earnings appear to come largely from final earnings disclosures. Whereas, if unexpected dividend information is disclosed, a significant price revision occurs abruptly at the time of interim dividend disclosures and not a t the time of final earnings announcements. Earnings changes explain as much as seventy percent of price changes in a portfolio of firms. There fore. the earnings response coefficient is a significant contributor to price change s in this Asian market. Further research is essential to extend the sefindings to less institutionally developed Asian share markets.