A Multi-perspective Empirical Study On Semi-annual Preliminary Earnings Estimate

Reporting preliminary earnings estimate is an innovation in China listedcompany reporting system. It is published before periodical earnings announcement,but after fiscal year or half year ends, in order to reduce the degree of informationasymmetry and protect investors’ right to know. Currently in China, scholars payrelatively more attention to the annual preliminary earnings estimates, mainly in thearea of institution implementation and information content, and there are few studiesfocusing on semi-annual preliminary earnings estimates. Instead of conditionalcompulsory disclosure like annual preliminary earnings estimate, semi-annualpreliminary earnings estimate reports are all voluntarily published. This voluntarynature is unique, upon which management incentive can be studied, institutionusefulness can be tested, and the market respond pattern to the information includedmay also be different. This paper is aimed at testing the information content ofsemi-annual preliminary earnings estimate, studying the market reaction to it and itsinfluence on decreasing stock price volatility near half-year financial reporting day,and trying to discover the reason for management’s voluntary disclosure throughempirical analysis. I select795samples with semi-annual preliminary earningsestimates and5324samples that do not publish one from China A share market in the5years between2008and2012, enlarging the sample size compared to previousstudies. Empirical results show that semi-annual preliminary earnings estimate hasinformation content, and the unexpected earnings included is significantly positivelycorrelated with cumulative abnormal return around its disclosing day; semi-annualpreliminary earnings estimate is helpful in weakening the share price fluctuation nearthe formal half-year reports in the short term, due to the release of surprising anduncertain information in advance; among all the semi-annual preliminary earningsestimates, the ones with higher information quality and better timeliness have strongerweakening effect. In addition, the research also finds out that higher level ofinformation asymmetry is one of the reasons that may exert pressure on managementto publish semi-annual preliminary earnings estimates, and more efficient corporate governance environment and good news in the operating performance tend to makethis voluntary disclosure more likely.