Introduction Objective and Motivation of the Paper

2013 ‗insider-trading.‘ The early response of the domestic investors will be followed by all of the investors in the next period. This suggests that the event date or event window does not capture the market reactions properly. The remaining of this study is organized in following order; Section 2 discusses the literature study and hypotheses development. Section 3 discusses the research methods used to examine all hypotheses. Section 4 discusses the research results and findings. The last Section 5 discusses the conclusion derived from analysis results and research findings.

2. Literature Study and Hypotheses Development Announcements and Return

According to Foster 1986, there are three factors that determine if announcements have information content. First, the expectation of the market about the content of the information and the timing of the announcement. One of the important factors that determines the expectation of the market is the availability of competing sources of information. Investors are very uncertain about the content and timing of any information issued by companies. The higher the uncertainty, the more likely the prices of stocks will be adjusted. Second, the effect of the new information issued on the distribution of return in the future. The higher the expected revision of the firms‘ cash flows, the largers will be the revaluation of the stock prices associated with the new information. Third, the credibility of the information sources. The more credible the sources, the larger will be the revision of the stock prices. Dontoh Ronen 1993 define information content in terms of reaction on volume, prices, and expected belief dispersion, decrease in the dispersion on the individuals‘ conclusions about public disclosures, and increase in accuracy or precision of disclosures. This definition is supported by Pritami Singal 2001 who argue that announcement of new information is associated with larger abnormal returns. When the information is consistent with the analysts‘ recommendation, the abnormal returns during 20 days is 3 to 4 larger for positive events, and -2.25 for negative events. Ball Brown 1968 examined the influence of the change of information content of earnings to investors‘ behavior at the New York Stock Exchange using a sample of β61 companies during 1946-1966. The investors‘ behavior is approximated by the level of the stock abnormal return. The investors‘ behavior is classified as positive change positive news and negative change bad news. The results of their research show that there are close correlations between earnings change and cash flow with abnormal return. The companies with earnings increase decrease are followed by the stock price increase decrease. After the annual financial statement published, the stock price index returns to flat from the zero month until the sixth month, that means the stock price has completely reacted against the whole earnings information, so that it is no longer reliable as a prosperous trading basics. This research is succeeded to discover evidences that there is a strong relationship between the earnings announcements and the stock market reaction. Beaver 1968 examined the effect of earnings announcements on the volume of trading and the stock price movement using a sample of 143 companies during 1961-1965. It is found that earnings announcements are associated with trading volumes. Based on the findings, Beaver concludes that: 1 the investors sell or buy stock to optimize the earnings incomes and earnings expenses trade-off; 2 the investors buy or sell stock to maintain on a porftolio basis; 3 the investors buy or sell because a there are changes in their portofolio risk, or b the companies are within their prefered risk; 4 the investors buy or sell to minimize their taxes; 5 the investors buy or sell because there is new information that make them revise their judgement 2014 about the possibility of return distribution. In his research, Beaver 1968 discovered that there is a dramatic increase in the trading volume and the variability of stock return during the week of earnings announcements. The variability of stock return is 67 higher during the day or the week of earnings announcements than non earnings announcements. Watt 1978 examined using quarterly financial statements. He concluded that information contents of quarterly financial statements could be captured more perfectly by the market than annual financial statements. His research results show that there is abnormal return after quarterly earnings announcements showing weak market form. Foster 1977 also studies the interim and annual earnings announcements, and then shows abnormal return variance for two days since the earnings had been announced. Morse 1981 investigates the price and trading volume volatility during a few days around quarterly and annual earnings announcements at Wall Street Journal WSJ. The sample used in this research includes daily volume data and daily stock price during four years of 1973-1976 for the stock traded at NYSE 20 stocks and ASE 5 stocks, and the stock traded at OTC. The results show that price volatility and trading volume increase before and during earnings announcements date at Wall Street Journal. The activity before the announcements date at WSJ may occur because the public announcements are misjudged. They are actually announced using broad tape on the day before WSJ issued. Similar to earnings announcements, the MA announcements can influence the stock price, either acquirer firm or target firm. The stock price variability of both firms reflects the stockholders‘ wealth level acquired from εA announcements. The stockholders‘ wealth level is measured by abnormal return acquired by acquirer firm and target firm. Parkinson Dobbins 1993 showed positive and significant abnormal return during 24 hour periods after bid announcements. The stock price of the target firm increases during acquisition announcements and acquisition process, meanwhile the investors of target and acquisitor firm gain high returns. Therefore, it could be conc luded that stockholders‘ wealth increases by merger. Limmack 1991 studied the merger consequences to the investors‘ wealth level by examining the gains distribution to merger firms‘ investors. The results show that, even there are no totally decrease of their investors‘ wealth as a result of company acquisition, the acquirer firm could experiences a decrease in their investors‘ wealth level. Inversely, the wealth of target firms‘ investors could increase significantly. Ghosh Lee 2000 argued that abno rmal return is correlated to target firms‘ performance which serve as underlying acquisition motives. The results finds high abnormal return for the target firm. Leeth Borg 2000 suggests that target firms‘ investors during 1λβ0s gained abnormal return from this acquisition more than 15. Song Walkling 2000 examined the merger effort sign which influence the non target firms in the same industry as the new target firm. The examination results shows that non target merger and acquirer firms get abnormal return around MA announcements. Even though, abnormal return of non target firms are less than target firm. This is caused by the possibility that nontarget firms would become the next acquisition target. Harris Ravenscraft 1991 studied stockholde rs‘ wealth of 1β7γ firms in USA who do acquisitions since 1970 until 1980. The results show that for firms with intensive industry research and development, cross border acquisitions took place more frequently than domestic acquisitions. This research conf irmed that target firms‘ wealth those are foreign firms are higher compared to the target which are domestic firms. Maquieira, Megginson Nail 1998 studied 260 mergers which did the merger payment using stock from 1963 until 1990, and finds that merger paid with stock did not produce financial sinergy or stockholders‘ benefit. Amihud, Lev