Stock Price Reactions to Publications of Financial Statements: Evidence from the Moscow Stock Exchange (P. Njoroge, M. Baumann, M.H. Baumann, D. Shevchenko, сетевое издание "Электронный журнал "Корпоративные финансы" Journal of Corporate Finance Research", N 1, 2021 г.)

Njoroge P., Baumann M., Baumann M.H., Shevchenko D. Stock Price Reactions to Publications of Financial Statements: Evidence from the Moscow Stock Exchange

P. Njoroge - Post Graduate Student, Faculty of Economics Southern Federal University, Rostov-on-Don, Russia

M. Baumann - Dr. rer. nat. Data Scientist Nurnberger Lebensversicherung AG, Nurnberg, Germany

M.H. Baumann - Dr. rer. nat. Postdoctoral Researcher, Faculty of Mathematics, Physics, and Computer Science

D. Shevchenko - Cand. Sci. (Econ.) Associate Professor, Faculty of Economics Southern Federal University, Rostov-on-Don, Russia

This paper analyses the effects of financial statements on the efficiency of the Russian stock market. Specifically, we analyse the impact of financial reporting on stock prices of the firms listed on the Moscow Stock Exchange. By means of the widely used event study method, which dates back to Ball and Brown [1], we analyse how corporate news publication affects stock prices.

Our research analyses 1000 samples, each consisting of 30 events, independent of the underlying stocks/firms and analyses the relation between the behaviour of the share prices and the release of the firms' annual, quarterly, and unscheduled financial statements. We use the daily stock price data of 56 components of the Russia Trading System Index from the years 2014 to 2020 in order to analyse the relation between the behaviour of the shares' prices and the releases of the firms' annual, quarterly, and unscheduled financial statements.

Using an ordinary least squares market model, we estimate the market parameters and especially the so-called normal returns, i.e. benchmark values. With this, we calculate the abnormal returns, i.e. the price changes caused by the events cf. [1; 2]. We perform several statistical tests for non-Gaussian distribution of these abnormal returns and find that there is a significantly non-Gaussian relationship between the publication of financial statements and the prices of the shares, which should not be the case in an efficient market [2].

Our results indicate that stock price volatility on the publication of financial statements may be caused by some information asymmetry, and demonstrate that the Russian stock market responds significantly to new information. Thus, we discuss recommendations to improve the information content of financial statements in Russia. This means analysts and fund managers can use new information to predict future stock returns and, thus, construct profitable portfolios.

Keywords: market efficiency, financial statements, Russian stock market, emerging markets, event study method, stock price reactions