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The reason why investors changed their attitudes dramatically right after the company released their half-year results is the announcement contains unfavorable information which has a negative influence on share prices. According to last financial year’s net profit of Myer Company, the market expectation of this income year’s full-year profit is significant higher than the released results from the company. The firm did not release any disclosure before the report came out. Investors plunged the share prices down as a response to receive the content information from the announcement. In order to increase the stock price, from CMR perspective, the company should disclose favorable information as well as diminish unfavorable information promptly.
Table of Contents
1. Introduction 3
2. Response from the market 4
2.1 Reasons of share prices dropped 4
2.1.1 Unfavorable information 4
2.1.2 Disclosure untimely 4
3. Results of CMR into financial statement 5
3.1 Historical cost income is used by investors 5
4. The post-earnings-announcement drift 5
5. Conclusion 7
6. Reference 8
The relationship between capital market and financial statement information has attracted significant consideration since Ball and Brown (1968) released their pioneering research. The topics of CMR include fundamental analysis, tests of market efficiency with respect to accounting information, accounting-based valuation and value relevance of financial reporting (Holthausen & Watts, 2001).
The purpose of this report is to explain some phenomenon from CMR perspective. The issues in this report include (1) if new disclosure could influence share prices and how the stock price will change, (2) how the market predict profits of a company and,(3) there are some post-announcement drifts exist under the Efficient Market Hypothesis(EMH), therefore, is it necessary to reject the research that has embraced the EMH? The theories used in this report are under assumptions of market is efficient. However, in recent years, there is a deal of researches changeling the EMH. Since accounting is human activity, individual make of this capital market, it is unreasonable to expect every sing man in this market act exactly as what the theory indicates. Therefore, some market behaviors do not always can be explained by the theory.
2. Response from the market
Whether accounting data has provided content information to investors is the primary objective of capital market research. In an efficient market, share prices adjust to all publicly available information, including that available in financial statement and other financial disclosure, in an unbiased manner. Share prices are deemed to be based on expectation about future earnings (Chee.W& Kian.P 2013) and will react to new information that is useful in reassessing the future cash flow of a firm. According to Robert, Kyong& Sang (2013) quarterly and half-year reports are associated with...