Analysis of signaling actions (corporate announcements) on stock market returns: focus on abnormal returns
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Measuring performance is an extremely important issue for firms. It aids management in gauging the effectiveness and efficiency of their strategies. Performance indicators abound, but financial related measures are one of the most salient and direct measures of a firm performance amongst the lot as it encompasses a variety of indicators. Stock market measures have proven to present a truer reflection of a firm’s health better than other financial based measures such as purely based accounting measures. This thesis examines the effect of firms’ signalling actions in the form of corporate announcements, on stock market returns with focus especially on the abnormal returns. The thesis can be summed up to be of two major parts. The extensive theoretical discussion which lays the foundation for the underlying theoretical constructs and the empirical part, which includes the quantitative event study for deriving the abnormal returns and the subsequent analyses. The study indicated that signalling actions do carry relevant information to the market as they influenced the returns generated. However, no strong relationship could be established between the classes of actions examined and their performance effects due to the relatively low number of actions that generated a significant reaction as against those that did not. In addition, it was observed that the intrinsic nature of specific classes of actions influence the reaction generated from the stock market. Having a larger number of events across the individual classes, for examination will probably help validate some of the trends observed from the events and the reactions from the market in further studies. Furthermore, using a less subjective method of classification and a less automated means of taking out confounding events will probably improve the reliability of results in future research.