1 Accounting Research Centre - ARC, Aarhus School of Business, Aarhus BSS, Aarhus University2 Department of Business Studies, Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Management, Aarhus School of Business, Aarhus BSS, Aarhus University4 unknown5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University6 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
A rich body of evidence exists on the relationship between security returns and corporate annual earnings announcements for countries with highly active capital markets. This paper presents some recent findings for a capital market at the other end of the scale: the small Danish stock market. Our results are based on the events study methodology, using the market model to calculate abnormal returns. In the first part of the paper we find that the Danish stock market extracts most of the information content of the earnings release on the announcement date and the day after. Significant average abnormal price changes can be found, however, two and three days after the announcement day. In the second part of the paper we identify the market´s expectations of earnings. This is done by comparing actual price changes with predictions of price changes based on various expectation models. Our findings suggest that only a model based on reported IBES-estimates of earnings per share shortly before earnings release is descriptive of the market´s expectations. Some of these findings contradict the results in the only published 17 year old Danish event study on annual earnings announcements and they indicate that the Danish capital market has become more efficient and sophisticated during the last two decades.