The information content of earnings announcements in Denmark

Purpose The purpose of this paper is to examine the reaction to earnings announcements in a small stock market. Design/methodology/approach The paper uses the traditional event study method to examine the information content of annual earnings announcements in the small Danish stock market from 1999‐2004. Findings The paper finds abnormal volatility in the days surrounding the announcements, indicating that they contain relevant information for the stock market. The abnormal volatility persists several days after the announcement, suggesting that the information environment of this small stock market works to decrease the speed of adjustment. In addition to this sign of inefficiency, the paper finds significant positive abnormal returns accompanying the announcements. These results are robust across various methodologies. Surprisingly, the paper finds a positive correlation between the information content and predisclosure information. This contradicts previous studies, and it is interpreted as evidence of a low level of pre‐announcement information. Confirming the results of similar studies, the paper finds that unexpected earnings are best proxied using a model based on consensus analyst forecasts. Originality/value This paper contributes to the existing literature by analyzing the information content of earnings announcements in a small stock market with accounting standards that are congruent with the International Accounting Standards.