Information Content of Accounting Data and Post-Earning Announcement Drift: An Insight into Event Study of Turnaround Companies in India

The study documents high information content and Post-Earning Announcement Drift (PEAD) phenomenon of the turnaround companies in India. Turnaround companies are defined as those which after reporting accounting loss consecutively for two or more quarters announce profit for the first time. By analyzing the data of 49 such turnaround companies, between 2004 and 2009, the study documents about 9% Cumulative Average Abnormal Return (CAAR) during the week following earning announcement. Profit reported by such companies acts as ‘earning surprise’. Short-run PEAD is observed contrary to efficient capital market theory which postulates instantaneous adjustment of price to new information. The study also attempts to provide some insight into insiders’ trading and earning management in the light of empirical findings.