Semi-annual earnings announcements and market reaction: some recent findings for a small capital market

This paper tries, first, to document the returns response of stocks to unexpected semi-annual earnings after the announcement of these earnings in a small capital market, i.e. the Brussels Stock Exchange (hereafter BSE), and second, to assess the explanations and empirical problems found in the literature concerning the post-earnings announcement drift. The motivation for this research is the introduction of new Belgian legislation initiating the reporting of the semi-annual results of the firms listed on the BSE (Royal Decree of 18 September 1990). We also attempt to avoid potential empirical problems of earlier Belgian studies and use some techniques more comparable with those of recent American studies. The results show that systematic post-earnings announcement drift is found neither for the market mode, nor for the size-adjusted returns model. The results also suggest that the market model is not a descriptively valid pricing model for the BSE or that its parameters are misspecified. When we distinguish between large and small firms, we discover for the size-adjusted returns model a CAR pattern for the large firms consistent with the results reported in the literature. However, the small firms show a puzzling pattern.