Investors’ reactions on publication of quarterly earnings at Zagreb stock exchange

Abstract

This study investigates the investors’ reactions to the publication ofquarterly earnings for companies at the Zagreb Stock Exchange. The empiricalresearch based on the event study and 409 firm-year observationsconfirms that investors react to the publication of quarterly earnings, whilethe Friedman test indicates that the reactions are most frequent for earningsannouncements from the second quarter (Q2). The occurrence of abnormalstandardized returns on announcement day suggests that the efficient markethypothesis in semi-strong form does not hold for the Croatian capital market.Moreover, there is evidence of gradual price adjustment after announcementday. Longitudinal analysis in the period 2010-2022 indicated that investors’reactions are stable and that there is no trend of growth or decline in standardizedabnormal returns. The estimated pool regression model revealedthat several firm characteristics influence the information content of quarterly earnings. The earnings surprise variable positively affects standardizedabnormal returns, while firm size and reporting of losses variables negativelyaffect standardized abnormal returns. The results of the study confirm tocapital market regulators the practical benefits of quarterly financial reporting,to firms that they can use quarterly financial reports to reduce informationasymmetry and to investors that after the quarterly earnings publicationthere is the possibility of achieving abnormal returns. The limitation of thisstudy is relatively small sample in comparison with similar studies. Findingsabout slow price adjustment after the day of earnings release might be challengedby the occurrence of other price-sensitive information. Some futureresearch might improve findings by use of additional independent variables,like management analysis and analyst forecast, which could shed new lighton the quarterly earnings information content at ZSE.