“Event Study - Impact of Annual Result announcement on

stock prices”
Prof. Namrata H. Deshmukh

Abstract:

The study here attempts to study the impact of result announcements on share
prices. Annual result declaration is a huge event for any company. The study
thus makes an attempt to identify the level of significance of stock prices with
reference to the announcement made. The announcement is considered to be an
Event and the days before and after the event is considered as an Event window.
The analysis is done for pre and post period. There was a significant difference
observed in almost all the scrips of BSE Index.

(Keywords: Event Study, annual result, impact study, Profit, stock)

Introduction:
As per the SEBI guidelines, every company listed on stock exchange have to
publish their quarterly as well as annual reports so as to keep their investors
aware about their current status and performance of the company. Investors can
thus take informed decision. Many at times what happen is as soon as the result
is declared, immediately the stock prices respond to it. The study here attempts
to identify the level of significance of stock prices with reference to the
announcement made. The announcement is considered to be an Event and the
date is considered as an Event window. The analysis is done for pre and post
period. Along with that the paper attempts to find out effect and its direction on
the specific day when the event occurred.

Objectives of the study:

 The main objective of the paper is to study the impact of annual result
announcement on share prices.
 To check the direction of price fluctuation of shares.
 To find out relation between share prices and Nifty Index.

Literature Review:
C. Babu and R. Kasilingam in their study “Impact of quarterly results on
share prices” studied the effect of quarterly results on share prices of securities.
The change in prices was also compared to the increase in profits reported in the
quarterly results. The correlation analysis showed that there was a significant
   

relationship between the prices and the movement of Sensex. The share prices
of crtain companies decreased in spite of good results of the company. Hence,
the rise in prices after the results were not because of the results but because of
rise in Sensex.

Dr. M. Selvam, Dr. M. Babu, G. Indhumathi and N. Kogila in their work

“Impact of Dividend announcement on share price : An Evaluation study”
studied the impact of corporate events on security prices. The study concludes
that dividend announcement makes a positive impact on the share prices of the
companies and it gave investors to earn superior returns. It showed that markets
are not perfectly efficient.

Konstantinos P Vergos, Apostolos G Christopoulos and John Mylonakis in

their study “The Impact of Publicity and Press Announcements on Share
Prices: An Empirical Study” investigated the effects of political, economic,
investment, and analysts’ report announcements on the share price of the
Hellenic
Telecommunication Organization (HTO). For this purpose, the study includes
announcements relating to HTO’s management status. Abnormal returns are
examined for different event periods (from the day of the event or five days
before the event/announcement till 120 trading days after the
event/announcement). The study concludes that stock prices do not react
instantaneously to publicly announced information and that stock prices
continue to appreciate or depreciate until at least ten days after the event.
Joseph Aharony and Amihud Dotan in their study “Regular Dividend
announcement and future unexpected earning: An empirical analysis”
studied whether quarterly dividend announcement convey useful information
about a firm’s future profitability beyond that contained in contemporaneous
quarterly earnings announcements. The results based on large samples of
regular quarterly cash dividend changes, indicates that firms that increased
(decreased)their dividends realized on average, greater (smaller) unexpected
accounting earnings in subsequent periods than firms that did not change their
dividend.

Research Methodology:
The study is purely based on secondary data. Secondary data of historical share
prices and annual reports was collected from NSE and BSE website. The data
was collected for 22 companies out of 30 companies of BSE SENSEX which
declared result of F.Y. 2012-2013 before 10th June 2013. Three event windows
were taken i.e. of 15 days, 10 days and 5 days pre and post annual result
announcement date.

Hypothesis:
   

Ho: There is no significant difference between annual result

announcement and price of the the stock.
H1: There is a significant difference between annual result
announcement and price of the the stock and the growth or decline in the
results in terms of profit will be reflected on share prices.

Selection of Hypothesis:
Selection of Hypothesis is based on p-value through T-test. If p-value is less
than 0.05, there is a significant difference between annual result announcement
and price of the stock. Thus, Null hypothesis is rejected and alternate hypothesis
is accepted.

Data Analysis:

Impact of result on Share prices:

To determine impact of result announcement on share prices, independent
sample T-test assuming equal variances was used. Table 1 shows that average
price of Bajaj Auto Pvt. Ltd. was 903.40 before announcement and it has been
reduced to 897.30 thereafter in case of Event window of 15 days. 906.13 to
924.26 in case of 10 days window and 898.34 to 925.20 in case of 5 days
window. The figure clearly indicates that there was a major difference in prices
in 10 days and 5 days window whereas there was a minimal difference in case
of 15 days window.

Table 1: Mean of Share price before and after result announcement of Bajaj Auto Pvt.
Ltd.
15 Days  10 Days  5 Days 
Criteria  Before  After  Before  After  Before  After 
Mean  903.40 897.30 906.13 924.26  898.34  925.20
Std Deviation  150.20 2145.45 202.33 20.03  157.56  14.61

Table 2: Mean of Share price before and after result announcement of Hero Motorcorp
Pvt. Ltd.

15 Days  10 Days  5 Days 

Criteria  Before  After  Before  After  Before  After 
Mean  1554.81  1678.48 1599.34 1690.38 1633.58 1689.07 
Std 
Deviation  5954.58  520.00 2416.14 189.63 370.33 271.96 

In case of Hero Motorcorp there is a huge difference in mean and Standard

deviation in all the event windows. The prices have increased after the result
announcement.
   

Table 2: T-Test of Bajaj Auto Pvt. Ltd.

P Value 
15  10 
Sr. No.  Scrip Name  Days  Sig. Test  Days  Sig. Test  5 Days  Sig. Test 
1  Bajaj Auto Ltd*  0.3130 Ho accepted  0.0006 Ho Rejected  0.0009  Ho Rejected 
Hero Motorcorp 
3  Ltd  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0006  Ho Rejected 
4  SBI Ltd  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0056  Ho Rejected 
5  Tata Motors  0.0005 Ho Rejected  0.0133 Ho Rejected  0.0006  Ho Rejected 
6  Tata Power  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0014  Ho Rejected 
8  NTPC*  0.2605 Ho accepted  0.0573 Ho accepted  0.0196  Ho Rejected 
9  RIL  0.0001 Ho Rejected  0.0023 Ho Rejected  0.1028  Ho accepted 
10  MARUTI  0.0000 Ho Rejected  0.0008 Ho Rejected  0.0003  Ho Rejected 
11  ICICIBANK  0.0005 Ho Rejected  0.0000 Ho Rejected  0.0000  Ho Rejected 
14  ITC*  0.3618 Ho accepted  0.1538 Ho accepted  0.1367  Ho accepted 
16  INFY  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0000  Ho Rejected 
17  TCS*  0.0358 Ho Rejected  0.1773 Ho accepted  0.1808  Ho accepted 
18  BHEL*  0.0557 Ho accepted  0.3604 Ho accepted  0.4598  Ho accepted 
19  COALINDIA  0.0001 Ho Rejected  0.0000 Ho Rejected  0.0000  Ho Rejected 
20  TATASTEEL  0.0000 Ho Rejected  0.0003 Ho Rejected  0.0003  Ho Rejected 
21  HUL  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0000  Ho Rejected 
22  HDFCBANK*  0.0000 Ho Rejected  0.0015 Ho Rejected  0.3462  Ho accepted 
23  WIPRO  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0000  Ho Rejected 
26  DRREDDY  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0001  Ho Rejected 
27  SUNPHARMA  0.0009 Ho Rejected  0.0003 Ho Rejected  0.0034  Ho Rejected 
28  HDFC*  0.0000 Ho Rejected  0.0001 Ho Rejected  0.0684  Ho accepted 
30  JINDALSTEEL  0.0000 Ho Rejected  0.0000 Ho Rejected  0.0197  Ho Rejected 

The independent sample T-test assuming equal variances showed that in almost
all the stocks there was a significant difference in price of the share after the
annual result was announced. However there are certain stocks like Bajaj Auto,
NTPC, ITC, TCS, BHEL, HDFC Bank and HDFC that showed no significant
difference between the stock and result announcement. Their p-value was more
than 0.05 because which the Null Hypothesis is accepted.
   

Relation between Increase/decrease in share price and Profit/Loss

announcement:
Table 3 shows the impact of Good or bad result announcement on the share
prices. The term “Good” refers to if there is increase in profit as compared to
previous year and “Bad” refers to if the profits have declined. In most of the
cases if the results are good, stock price would go up and if it is bad, the stock
price plunges. But in few cases like Bajaj auto, SBI, Tata Motors, ITC, INFY,
TCS and Wipro it was found that the results were good but the stock
plummeted. However, ITC and TCS are the stocks that showed no significance
through t-test so it does not make much difference whether it is up or down but
the rest four need further analysis.

Table 3: Relation between Increase/decrease in share price and Profit/Loss announcement:

Good/Bad 
15 Days  10 Days  5 Days 
Sr. No.  Scrip Name  Result 
Impact  Impact  Impact 
announcement
1  Bajaj Auto Ltd*  Good  ‐0.67  2.00  2.99 
Hero Motorcorp 
2  Ltd  Good  7.95  0.04  3.40 
3  SBI Ltd  Good*  ‐11.18  ‐11.44  ‐6.54 
4  Tata Motors  Good*  ‐4.12  ‐2.93  ‐5.79 
5  Tata Power  Bad  ‐9.31  ‐8.71  ‐7.83 
6  NTPC*  Bad  0.70  ‐1.27  ‐1.43 
7  RIL  Good  2.92  2.28  1.60 
8  MARUTI  Good  8.49  5.38  0.02 
9  ICICIBANK  Good  2.99  4.88  4.96 
10  ITC*  Good  ‐0.27  ‐0.97  ‐0.77 
11  INFY  Good*  ‐20.61  ‐21.57  ‐19.28 
12  TCS*  Good  ‐1.87  ‐1.35  ‐1.38 
13  BHEL*  Bad  ‐2.47  0.47  0.12 
14  COALINDIA  Good  4.35  7.14  6.01 
15  TATASTEEL  Bad  ‐6.82  ‐4.33  ‐2.66 
16  HUL  Good  21.77  20.72  19.99 
17  HDFCBANK*  Good  7.29  4.18  0.46 
18  WIPRO  Good*  ‐15.87  ‐13.44  ‐10.49 
19  DRREDDY  Good  4.96  3.75  3.05 
20  SUNPHARMA  Bad  ‐3.81  ‐4.78  ‐5.15 
21  HDFC*  Good  6.31  3.44  2.33 
22  JINDALSTEEL  Bad  ‐5.98  ‐4.81  ‐2.79 

Table 4: Correlation between stock price and Index for stocks with Negative impact of
result announcement.
   

Correlation 
Sr. No.  Scrip Name  15 days  10 days  5 days  Impact  Reason 
                    
1  SBIN  0.799458 0.815415 0.478914 Positive  Market 
2  TATAMOTORS  0.64482 0.51348 0.933515 Positive  Market 
3  INFY  ‐0.63603 ‐0.59215 ‐0.63705 Negative  other 
4  WIPRO  ‐0.71017 ‐0.78205 ‐0.90584 Negative  other 

Table 4 tries to find out the negative impact of good results on share prices.
SBIN and Tata Motors showed a positive correlation with Index which means
that Index can be one of the reasons why that stock fall in spite of good result
announcement. However INFY and Wipro showed strong Negative correlation
with Market index which means there is some other reason for the stock to fall
in spite of good results.

Observations on price fall on Good annual result announcement:

Though annual result announcement is one of the major event for any company,
there are lot of factors driving the stock prices. There can be any political issue,
foreign exchange fluctuation, internal news of the company, Crude Oil prices,
Gold rates or Global news, etc.

Here are 10 reasons why Infosys shares fell sharply:

1. Muted guidance: The biggest disappointment was the full year dollar
sales outlook for 2013-14. The company said it expects dollar revenue
for FY14 to grow between 6 per cent and 10 per cent. Most analysts
had estimated that Infosys would set a target for revenue growth of as
much as 12 per cent.
2. Local weakness: Infosys guidance for 2013-14 is lower than what
industry body Nasscom forecast for the entire industry. Nasscom
expects India's IT industry to grow at 12-14 per cent in the current
fiscal year. K.K. Mital, CEO for portfolio management services at
Globe Capital, said Infosys' guidance appears to be a company-specific
problem. Even mid-cap companies are expected to perform better than
this.
3. Guidance miss: For 2012-13, Infosys revenues grew by 5.8 per cent
against a forecast of 6.5 per cent growth. Infosys CEO S.D.Shibul said
the miss was on account of slower deal ramp-ups, pricing decline and
adverse cross-currency impact.
4. Earnings guidance: Infosys has not put out earnings guidance for fiscal
2013-14. IT analyst Bhavin Shah said the absence of earnings guidance
   

means the company is becoming flexible with pricing. It had earlier

stopped giving out quarterly guidance citing global uncertainties.
5. Organic growth disappoints: Organic revenue growth was flat.
Domestic brokerage IDFC said most of the incremental growth was
driven by Lodestone, the Swiss consultancy which Infosys acquired
last year.
6. Sales flat: Fourth quarter sales were flat sequentially at Rs. 10,454
crore against Rs. 10,424 crore in the third quarter ended December
2012. Brokers polled by NDTV estimated sales to grow to Rs. 10,744
crore.
7. Margins fall: Operating margins, a key measure of profitability, fell
more than estimated at 23.55 per cent. A 200 basis point dip in margin
was the real red flag.
8. Cautious commentary: The management continues to be cautious. Mr
Shibulal said deal ramp-ups in the fourth quarter were softer than
expected. The company expects billing rates and margins to be under
pressure in the short term, Rajiv Bansal, the company's chief financial
officer, said.
9. Pricing decline: Infosys said higher volumes growth (1.8 per cent
sequentially) in Q4 did not results in higher profits because pricing
declined by 0.7 per cent in the March quarter.
10. Discretionary spend: Infosys' dependency on discretionary spend is
much more than the industry on an average. 33 per cent of Infosys'
revenue comes from consulting and system integration which depends
on discretionary spends. With no signs of an immediate pick up in
discretionary spend, Infosys is unlikely to be an outperformer in the
near term.

Reasons why Wipro shares fell sharply:

Wipro Ltd’s weaker-than-expected quarterly sales forecast highlighted a gap in

performance among India’s four biggest IT exporters and a still shaky recovery
in client demand.

Wipro, India’s third-largest software services provider, joined No. 2 player

Infosys Ltd in delivering tepid revenue guidance, citing a delay in the closure
of deals. The forecasts contrast with a more bullish outlook issued by industry
leader TCS that had raised expectations IT spending by clients in the United
States and Europe was improving.

Wipro, whose customers include Apple Inc , projected fiscal first-quarter

revenue for its IT services business in a range of $1.58 billion to $1.61 billion –
a decline of 0.6 percent to a rise of 1.6 percent over the previous quarter.
Analysts had expected a rise of 1 to 4 percent.
   

A more sanguine TCS, which does not issue specific revenue guidance, said it
expects full-year revenue growth to beat the forecast issued by the National
Association of Software and Services Companies (NASSCOM).

DELAYED DEALS

Some of the deals that Wipro had expected to close in the March quarter had
been delayed to the current quarter, Suresh Senapaty, Wipro’s chief financial
officer, told reporters.

Conclusion:
The present study proves that the share price heavily deviate compared to
normal in case of Annual result announcement event. Independent sample T-
Test proves that almost all the stocks show significant differences in prices pre
and post period of Annual result announcement for 15, 10 and 5 days except a
few stocks with no significant difference. The study concludes that a good result
announcement raises the prices of the stock whereas a Bad news causes a fall in
stock prices. However, annual result is not the only factor and there are other
factors too which are driving the share prices because of which the exception of
Infosys and Wipro scrip was found which inspite of good annual result
announcement gave a negative response to it.

Bibliography:

1. Dr. M. Selvam, Dr. M. Babu, G. Indhumathi and N. Kogila, “Impact of

Dividend announcement on share price : An Evaluation study” Indian
Journal of Finance, April 2010, Volume 4, No.4, page no.3-16.
2. C. Babu and R. Kasilingam, “Impact of quarterly results on share prices”,
Indian Journal of Finance, March 2013 Volume 4, No.4, page no.19-28.
3. Joseph Aharony and Amihud Dotan, “Regular Dividend Announcement
and future unexpected earnings: An Empirical Analysis” The Fianancial
Review, Volume 29, No.1, February 1994, page no.150-151
4. Konstantinos P Vergos, Apostolos G Christopoulos and John Mylonakis,
The impact of publicity and press announcements on share prices: An
Empirical Study, The Icfai University Press, 2008, Page no.35-55.

Sources:
1. www.bseindia.com
2. www.nseindia.com
3. www.moneycontrol.com
4. www.reuters.in