EMH and Post-Earning Announcement Drift: An Insight from Event Study of Turnaround Companies in India

Turnaround companies are defined as those which after reporting accounting loss consecutively for two or more quarters announces profit for the first time. Between 2004 and 2009 by analyzing the data of 49 such turnaround companies, we document about 9% cumulative average abnormal return (CAAR) during the week following earning announcement. The study reveals- accounting profit by turnaround companies acts as ‘earning surprise’ reflecting inability of analysts to predict quarterly result, weak form of market efficiency and short run post-earning announcement drift (PEAD) contrary to EMH which postulates instantaneous adjustment of price to new information. The study also attempts to provide some insight as to insiders trading and earning management in the light of empirical findings.