Market reactions to timing and information of mandatory disclosures

Abstract

PurposeThis study examines whether investors value the timing and/or information of mandatory disclosures in a unique research setting of listed companies in Thailand.Design/methodology/approachThe authors adopt an event-study based approach. Abnormal stock returns are calculated using an OLS market model to measure market reactions to three types of mandatory reports issued by listed Thai firms: financial statements, Form 56-1 and Form 56-2. These reports are released sequentially but contain overlapping information content. Multivariate regression models are employed to examine the market reactions to these regulatory reports and explore the characteristics of firms that affect the market response.FindingsThe stock market reacts differentially to these reports. The financial statements, which are filed the earliest and are the most concise, prompt the strongest reaction. Investors similarly react significantly to Form 56-1 and Form 56-2, although Form 56-2 provides additional information beyond Form 56-1. The market reactions to small firms are stronger. Collectively, equity investors focus on the timeliness of disclosures rather than the information disclosed in the mandatory reports.Practical implicationsThe evidence provides support for ongoing regulatory initiatives aimed at improving the timeliness of mandatory disclosures in emerging economies.Originality/valuePrior studies on disclosure regulation investigate either the effect of information content or the timing of mandatory disclosures in isolation. The authors differentiate the effect of information content from disclosure timing and extend the literature by suggesting that investors incrementally value timeliness of disclosures. Investors perceive the benefit of the timely release of quantitative information compared to subsequent narrative disclosures. Between Form 56-1 and Form 56-2, the earlier release of the narrative non-financial information is incrementally traded into share prices.

Is mandatory disclosure an effective panacea for buyer beware?

“…Our research also produced useful insights about the importance of the timing of disclosure. Studies agree that mandatory disclosure is best fulfilled before the time the purchaser makes an offer to purchase real estate, securities or other assets (Stern, 2005;Edwards, 2004;Kiattikulwattana and Pattanapanyasat, 2023). Permitting disclosure after the contract has been concluded, as is the case in SA, requires the purchaser to review a decision already made, whereas insights from behavioural law and economics show that once a contract is formed, purchasers will view their decision as a "done deal."…”