4. RESEARCH RESULTS AND ANALYSIS
4.2 EMPIRICAL RESULTS
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4.2 EMPIRICAL RESULTS
There are two hypotheses used to analyze whether information content gap exists in the financial news articles and financial reports can explain stock price movement.
The results of each hypothesis will be stated respectively in the following section.
4.2.1 Results for the Test of Relationships between Footnotes Scoring and Stock Price Movement
The results of Equation (1) analyzing the relationships between the additional information in the footnotes to financial statements and stock price movement with is presented in Table 4-3.
Table 4-3 presents estimation results for Equation (1). Different from prior research, the coefficient on BEAT is not statistically significant as in prior research. The coefficient on SURP is not significant when BEAT is included in the regression.
DIV_INC, BM and LOGREV are not statistically significant. The coefficient on FILELAG is not statistically significant. NOTESCORE is not statistically significant to the market response. This study suggests that these additional disclosure requirements are not decision relevant enough, because these requirements are mostly about standardized supplementary information.
Based on the results, this study cannot reject Hypothesis 1, indicating that this study is unable to prove that the information content disclosed in footnotes to financial statements provide possible explanation to the stock price movement.
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Results for the Test of Relationships between Footnotes Scoring and Stock Price Movement
Variables Expected Sign Coefficient t-stat
Intercept -0.0314 -0.50 relationships between financial news articles and stock price movement with additional information disclosed in the notes to the financial statements. *, **
and *** denote statistical significance at the 10 percent, 5 percent, and 1 percent levels, respectively, based on a two-tailed t-test. SURP is the difference between annual actual earnings and the most recent consensus analyst earnings forecast made prior to the earnings announcement, scaled by stock price measured at the beginning of the year. BEAT is equal to 1 if announced earnings for the year of 2013 meet or exceeded analysts’ expectations (i.e., when SURP ≥ 0) and 0 otherwise. DIV_INC is equal to one if the dividend change is positive, compared to prior year, and is 0 if the dividend change is less or equal to zero or there was no dividend announcement made in 2014. BM is book-to-market ratio as the book value of equity scaled by the market value of equity (both measured at the end of the cur-rent year). LOGREV is current year sales (REV) and use its natural logarithm. FILELAG is equal to the number of days between the annual financial reports release date of each company and average companies’.
NOTESCORE represents the scoring of notes to financial statements based on
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the seven criteria brought out by FSC.
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4.2.2 Results for the Test of Relationships between Footnotes Scoring and Stock Price Movement by Adding the Information Content of Financial News Articles
The result of Equation (2) analyzing the relation between financial reporting along with the information content and sentiment of financial news articles and stock price movement is presented in Table 4-4.
Table 4-4 presents estimation results for Equation (2). The coefficients on variable controlling for qualitative disclosures, DIV_INC, is statistically significant as well but with opposite direction. This study suggests that because financial news articles may contain expected dividends for a company before its declaration, but that is still a random guess. In addition, some financial news articles may include comments and expectations of the company from its management, which may not be a strong source of information. The market therefore does not react to the information positively until they receive formal announcement. BM and LOGREV are positive and statistically significant, suggesting that the market responds positively to higher book-to-market ratios and higher revenue companies. The coefficient on FILELAG is statistically significant, indicating that managers’ decision on timing of making annual financial reports open to the public does relate to cumulate abnormal returns. That is, the later companies release their financial reporting than other companies, the higher the market response. This study finds coefficient on DET_FS not statistically significant, which is different from prior research (Davis et al. 2012) presenting an association between the earnings announcement period returns and the presence of detailed financial statements.
The coefficient on TONE is positive and statistically significant, suggesting that positive sentiment in financial news articles are associated with positive cumulated abnormal returns around the announcement of the annual financial reports. However,
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relationships between financial news articles and stock price movement. *, **and *** denote statistical significance at the 10 percent, 5 percent, and 1 percent levels, respectively, based on a two-tailed t-test. SURP is the difference between annual actual earnings and the most recent consensus analyst earnings forecast made prior to the earnings announcement, scaled by stock price measured at the beginning of the year. BEAT is equal to 1 if announced earnings for the year of 2013 meet or exceeded analysts’ expectations (i.e., when SURP ≥ 0) and 0 otherwise. DIV_INC is equal to one if the dividend change is positive, compared to prior year, and is 0 if the dividend change is less or equal to zero or there was no dividend announcement made in 2014. BM is book-to-market ratio as the book value of equity scaled by the market value of equity (both measured at the end of the cur-rent year). LOGREV is current year sales (REV) and use its natural logarithm. FILELAG is equal to the number of days between the annual financial reports release date of each company and average companies’.
DET_FS is equal to 1 if the sum of BS_D and SCF_D to be equal to or greater Table 4-4. Results for the Test of Relationships between Footnotes Scoring and Stock
Price Movement by Adding the Information Content of Financial News Articles Variables Expected Sign Coefficient t-stat
Intercept -0.1616 -2.09
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than 1 and is 0 otherwise. BS_D and SCF_D to be 1 words identified are greater than one for balance sheet related words and sentences greater than one for statement of cash flow related words and sentences, respectively. TONE is the differences between frequency counts of optimistic words and negative words separately and divided by the sum of frequency count of positive and negative words. That is, (P－N)/(P＋N). TOTALCORE is sum of the scores of footnotes to financial statements and financial news articles.
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the coefficient on TOTALSCORE is not statistically significant.
From these results, this study can reach to a conclusion that stock market responses are more associated with additional information content in financial news articles than merely financial reporting alone. That is to say, the results do support Hypothesis 2.
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