Research On Market Reaction From Profit-warning Announcements Of The Listed Companies

To improve the information disclose of the listed companies is the basis of the effective operation and healthy development of the securities markets. Since the establishment of the stock market, the relevant departments have promulgated a series of laws, rules and regulations, and gradually form of basic norms of information disclosure of listed companies. Stock market information disclosure system has been fundamental institutional arrangements, but also the core of securities regulation. So, the importance of information disclosure is always the established practice home and abroad. All along, under the information disclosure system, performance information disclosure has been the focus of the community in general, which is not only the core of information disclosure, but also has considerable significance for investors decision-making. And the performance report is a direct source of performance information and data, is the main carrier and an important part of information disclosure of listed companies, is the primary way for investors to understand listed companies. Thus, the quality of report information will directly significantly affect stakeholder decision-making role. Capital market is essentially an information market, but the capital market is not completely efficient, while asymmetric information is present in a wide range of capital markets,with which will bring serious "adverse selection" and "moral hazard" problem. All the information on the capital market will eventually reflect varying degrees in the stock price, which have a significant impact on the decision-making behavior of information users.Profit warning is a part of the performance reports, and is designed to warn in advance when the expected performance of a company fell sharply, publication of profit warning announcement always means that the upcoming earnings report will bring significant negative news. In other words, judgments about listed companies made by investors based on past information may be biased, and the message that the profit warning announcement transfer would change the investor’s attitude to the expect profitability of a stock, which lead to the change of risk degree of stocks. Eventually, the decision-making behavior of investors will be changed. Due to the existence of asymmetric information between users and listed companies, the information transferred by profit warning announcement can effectively reduce this information asymmetry. After receiving the signal of a profit warning announcement, rational investors in the market will immediately alter the attitude towards the company’s future expectations instead of previous judgment and then decide to buy or sell stocks. The behavior of investors under the price mechanism will cause listed company’s share price up or down, and then form phenomenon we usually called market reaction.We can say that the profit warning system is a system with Chinese characteristics, from the beginning of profit warning systems to today, profit warning announcement appear frequently which attracted the attention of domestic scholars, and the study about profit warnings have been some research, but also made progress. So under this institutional unique arrangements for Chinese capital market, the stock market will how to react after a profit warning announcement, what difference between different properties, different release time and different sizes for the profit warning announcement of a company. In the paper, on the basis of summarizing previous viewpoint, it combine China’s stock market current situation of profit warning for further study.In this paper, empirical research is mainly used, and supplemented by standardized research methodology. Using a sample of the profit warning announcement of Chinese A-share Companies released from 2008 to 2011, by the means of classical event study method, the paper tries to study the market reaction from profit warning announcement of listed companies to investigate the stock market’s short-term performance after the profit warning announcement and analyze market reaction in warning period. The study focus on the following aspects of profit warning announcement:First, whether the effect of profit warning announcement is partly anticipated by the market; Second, how it respond to the profit warning; Third, weather there is a lagged response to the warning.The first part is an introduction to explain the purpose and significance of the research, review the domestic and foreign literature related to profit warning and summarize related literature of profit warning announcement, define and study related concepts, introduce the research method and structure of the paper, and finally collect and collate relevant laws of present situation about profit warning.The second part of is the analysis of relevant theories, including the theory of efficient markets, adverse selection and signal transmission theory. Then, the paper puts forward the hypothesis on this basis;The third part, according to the research purpose, the thesis designs the research, including event study method, source of data and sample selection;The fourth part, using the event study method, calculates the cumulative abnormal returns(CAR) in the announcement period of profit warning announcement and carries on the single sample mean test and multiple regression analyses.The fifth part is the conclusion, the results show that there is a significant negative market reaction (-1.77%) in general during period of warning announcement of listed companies. Second negative market reaction of warning announcement is more sensitive to distance length among the release date of warning announcement and financial reports, and the warning announcement away from financial reports less than one month in the event window has a mean cumulative abnormal returns of-1.84%.Third,there is obviously evidence of leakage effect and lagged effect of the warning announcement, the stock began to change 5 days or 15 days before the profit warning announcement and even 10 days after the profit warning announcement. Fourth, although market reaction do not entirely depend on the source of profit warning announcement, but the market reaction is relatively more significant to the company though weak revenue compared with non-revenue reason companies. What’s more, the leakage effect is more significant to revenue reason companies. Fifth, the market reaction is closely related to firm size, the larger size of the company, the less obvious negative market reaction and leakage effect; On the contrary, the smaller size of the company, the more obvious negative market reaction and leakage effect.The possible innovations of this paper mainly lies in the following areas, the research on market reactions from profit warning announcement of listed companies is relatively few in China, even a small amount of research is also based on the effect of system test perspective, relevant empirical research remains too little. In this paper, event study method is used from the perspective of market based on samples from the A-share listed companies in multiple perspectives like different properties, different release time and different firm sizes to deeply analyze and distinguish market reaction from profit warning announcement of listed companies...