Impact of Accounting Information on Stock Returns : An Empirical Study on Shariah Compliant Companies of Pakistan

Abstract

The purpose of this research study is to investigate whether accounting information through the issuance of annual reports influence stock returns movement in Pakistan Stock Exchange so that the current form of market can be identified. The event study methodology is employed in this research study to examine the behavior of firms’ stock returns around the corporate event. The event window is created for 21 (-10, +10) days to examine the behavior of stock prices around the issuance date of annual reports. The study has estimated the abnormal returns by using the market model suggested by Brown and Warner (1985). A sample of 25 Shariah Compliant Companies listed in KMI-30 Index has been under observation for the period of 5 years from January 2011 to December 2015. The results show that there is weak evidence of publication of annual reports effect on stock returns. Furthermore, the analysis shows that corporate financial disclosure does not lead to generate significant abnormal returns by investors. This study strongly supports the semi-strong form of efficiency in Pakistan Stock Exchange.