An Empirical Researth On The Impact Of Production Safety Accident And Nature Disaster Announcement On Stocks In China’s Market

Production safety accident(internal factor regarding management level), which result in production disruption or casualties arise sometimes in a firm’s production process. Meanwhile, some nature disasters(external inevitable factor) inevitably cause casualties or directly affect listed companies’ revenues by breaking their production process. Firms would generally publish announcements to declare the details of the accident or disaster as well as their losses coursed by the event. For the sake of investigating the effects of production safety accident and nature disaster announcement on stock price, in this paper, we adopt handle-collected production safety accident and nature disaster announcements over the period 2003-2013 and use event study methodology to carry out an empirical research base on low-frequency and high-frequency data from China’s stock markets. Moreover, we also investigate the relationship between intraday 5-min(cumulative abnormal) returns and order imbalance after announcement.Firstly, we analyze the impact of production safety accident and nature disaster announcement on inter day returns using daily data. We find that these two types of announcement indeed produce significantly negative impact on stock price, but the duration of this negative effect is shorter in bull markets relative to that in bear markets. And compared with production safety accident, nature disaster announcement has less negative impact on stock price, which present differently in different stages. Meanwhile, the announcements produce various impacts on stocks in various industries, especially the industry of electricity, heat, gas and water production and supply, which almost not negatively affected by the announcements. Besides, the announcements of same seriousness have more negative impact on small size firms in the short term relative to the big size firms, which more negatively affected in the long term.Then we examine the intraday abnormal returns as well as the volatility of stock price before and after the announcement of production safety accident and nature disaster based on high-frequency data. And our findings are as follows. Firstly, both nature disaster announcement and production safety accident announcement produce negative effects on stock returns. However, there are some differences in effects between the different types of announcement. Secondly, it is just within the event day that the volatility of stock price is distinctly increased by the two kinds of announcement. Thirdly, there are some differences in the impacts of nature disaster announcement on firms in different industries. Finally, there are also some differences observed between the impacts of production safety accident announcement on chemical firms and other firms.The results of research on the relationship between intraday 5-min returns and order imbalance indicate that, firstly, there is strong autocorrelation in the series of order imbalance. Meanwhile, there is also some positive correlation between intraday 5-min return and order imbalance. And current order imbalance has positive effect on the return in the same period, and current return can be forecasted by the order imbalances in lagging periods. Furthermore, the result of research on the relationship between intraday 5-mins cumulative abnormal returns and order imbalance within event day show that current order imbalance also has positive effect on cumulative abnormal returns in the same period, and current cumulative abnormal return can be forecasted by the order imbalances in lagging periods as well.