What ’ s the use of annual earnings release for Belgian listed companies ? December 2000

The purpose of this article is to examine whether the legal obligation for Belgian listed companies to release annually their earnings is still useful in markets where the quantity of information already present is important. A sample of 108 earnings releases between January 1997 and June 1999 by Belgian companies listed on the First Market of the Brussels Stock Exchange has been analysed. The empirical study reveals that the earnings disclosure presents an informational content as the stock price reacts significantly at the day of the release. Furthermore, the reaction of the market is different depending on whether the earnings surprise – the nonanticipated part – is positive or negative. The analysts’ consensus is used as a proxy for markets’ expectation of earnings. Two main results can be drawn from the analysis: first the market anticipates partially the level of earnings surprises and secondly it overreacts at the disclosure date and corrects the week after. Moreover, the market reacts less negatively for bad news and positive earnings surprises lead to huge positive reactions. This shows that on average investors seem to be less optimistic than analysts are. Consequently, the new legislation on periodic information for Belgian companies is useful for financial markets because the information released is not already incorporated in stock prices and thus the earnings disclosure let the investors adjust their anticipations for future corporate cash flows.