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Beaver (1968), who first looks at the information content of earnings releases in the US market, is credited with starting a large body of work on the informative content of earnings. Beaver proves that there is a noticeable spike in trading volume and stock price volatility during the earnings release period. The substance of earnings releases is measured by trading volume as well as stock price volatility. It has long been believed that by replacing private pre-statement knowledge with a public announcement, earnings releases lessen information asymmetry. On the other hand, empirical data indicates that certain earnings releases lead to fresh disputes by causing more people to obtain private information (Bamber et al., 1999; Kandel and Pearson, 1995). The perceptions of ordinary investors are expected to change in response to growing content, which will increase the volatility of the earnings release time. Furthermore, the more substance there is in an earnings release, the more probable it is that investors would interpret it differently, which will enhance trading activity throughout the earnings announcement time. Using other samples and alternative approaches, several follow-up studies by Kiger (1972), Morse (1980, 1981), Bamber (1986, 1987), and Ziebart (1987, 1990) continue to indicate that earnings releases are an essential source of information for stock investors. According to Beaver (1968), trade volume indicates how each individual investor interpreted an earnings release, whereas stock price fluctuations represent the average shift in investors’ perceptions about the news. In their study, Chan et al. (2005) examine how a large sample of Australian listed businesses’ annual earnings releases affect the market’s short window response based on company size. Regressions between unexpected returns and profits are used. Other factors, such as contemporaneous dividends, positive or negative earnings, earnings levels, and earnings variations known to impact the response to earnings announcements, are adjusted for. Non-linearity in the returns-earnings connection is also taken into account. The findings indicate that while business size has no impact on the reaction to earnings releases during a three-day window, larger firms exhibit a much higher response throughout a 21-day timeframe. They come to the conclusion that while the information contained in earnings releases is the same for all company size categories, the kind of response varies according to firm size. In their study, Cready and Gurun (2010) directly assess one thing: whether there is a discernible aggregate market response to earnings information releases; The study is based on a sample consisting of all quarterly earnings announcements from 3 January 1973 through 21 June 2006. The inverted hammer candlestick pattern is a sign of a short-term downtrend reversal or bullish reversal. They make use of the daily CRSP value-weighted and equal-weighted return indexes aggregated from NYSE and AMEX. They find a clear negative relationship between total market returns and earnings announcement surprises within the immediate announcement period. In other words, market values rise in response to unexpectedly low earnings and fall in response to surprisingly large earnings. So they discover that news about profits that conveys information about inflation and discount rates at the aggregate level directly affects Treasury bond rates and implies future inflation expectations. A P/E ratio is defined as the stock price divided by the earnings per share (EPS). The fundamental formula for calculating earnings per share (EPS) is net income divided by the total number of outstanding shares. EPS is a key indicator of a company’s success. The formula for calculating the earnings yield is EPS divided by stock price (E/P). Investor returns are subject to significant fluctuations based on the market’s reaction to a company’s earnings release, owing to the possibility of substantial price fluctuations. A stock’s price frequently experiences a notable increase or decrease right after an earnings release. Reexamining its surveillance system is necessary for the market regulator to identify any insider trading activities with earnings knowledge. To take advantage of noted market inefficiencies, investment managers need to closely monitor earnings the news and create trading plans around earnings releases. Then corporate finance managers of organizations will find it important to comprehend how stock prices respond to earnings releases and how best to schedule their earnings announcement date in comparison to their rivals. The study adds to the body of knowledge on developing market behavioral finance as well as stock market efficiency. According to Beaver (1968), there is a noticeable rise in trade volume and stock price volatility during the earnings announcement time. The effect of earnings releases is reflected in trading volume as well as stock price volatility. While long-term stock values are influenced by earnings, the stock market functions mostly on supply and demand in the short term. This implies that a company’s stock price may increase or decrease in response to outside market variables, regardless of whether it posts excellent or terrible results. The earnings of the corporation are directly correlated with the stock price and values. The profitability and net income of the corporation are the primary factors that determine the stock prices. An entity’s worth or stock price will rise in response to greater net earnings.
