Arguably, financial reporting, disclosure of financial outcomes, and related data to external stakeholders and management are essential in tracking, analyzing, and reporting business income. Financial reports, including statement of changes in equity, income statement, and statement of cash flows, help examine business performance, cash flow, resource usage, and the company’s financial health. Consequently, the information helps the business owners and investors to make informed decisions about business management. Also, research shows that financial reporting and disclosure impact stock prices, as discussed in this paper.
Patro and GUPTA (2016) argue that the stock price’s synchronicity since the International Financial Reporting Standards (IFRS) adoption has strengthened the stock price relationship with the capital market stability and economic development. The research aimed to determine the impact of the mandatory IFRS adoption in reducing stock price synchronicity within Asian. The research concluded that the IFRS’s adaptation is significant in improving the information environment by capitalizing certain business information into stock prices. Consequently, the capitalization in question reduces the stock price synchronicity.
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Another research conducted by Dodonov (2020) aimed to investigate if the financial statement release can be used as a signal to buy a stock. Dodonov conducted various experiments, which compared the firms’ performances that released their financial reports with the firms that did not release the reports in question. However, the experiments did not demonstrate adequate evidence to show that an investor can rely on price changes observation after the financial statements report is disclosed and join the trend after its strength and direction are evident. Nonetheless, the study acknowledges that financial statements release can have a negative or positive impact on the stock price.
Dang et al. (2018) studied the financial data impact on the listed companies’ stock prices on the Vietnam Stock Exchange. The research investigated the relationship between determinants, including firm size, operating activities book value, cash flow, earnings per share, and stock prices, using multiple regressions. Subsequently, the results indicated that four elements have positive stock price relationships. Dang et al. (2018) further argue that the financial data impact on stock prices has been gaining strength in the recent past, thus attaining explanation levels of above 60% in the years 2015 and 2016.
Additionally, Wambugu & Essajee (2016) conducted a research study to determine the effects of voluntary financial releases on the stock returns of Nairobi Securities Exchange listed firms. In conclusion, the study outcomes indicated that firm size, dividend payout, financial services sector, human resource accounting, environment accounting, corporate social responsibility, and corporate governance had a positive relationship with stock returns. As a result, the study recommended companies to embrace voluntary financial disclosure since it can posit them to various advantages, including easy access to external financing.
Another study conducted by Viet Ha et al. (2018) aimed to investigate the accounting data impact on financial reports on the stock value of energy enterprises listed on Vietnam’s stock market. The research indicated that return on assets (ROA), accounts receivable turnover, current ratio (CR), and enterprise size have a positive relationship with the stock price. However, the level of this relationship’s explanation is approximately 48.47%. The research further indicates that capital structure does not affect stock prices.
Questions That Require Further Explorations
Dodonov (2020) argues that for an in-depth analysis on whether the financial statement release can be used as a pointer to buy a stock, numerous segmentations on the firm’s market capitalization, funding structure, and company age should be investigated. Similarly, Wambugu and Essajee (2016) recommend that further studies be conducted on other factors affecting the stock returns.
References
Dang, N. H., Tran, M. D., & Nguyen, T. L. (2018). Investigation of the impact of financial information on stock prices: The case of Vietnam. Academy of Accounting and Financial Studies Journal , Volume 22 (Issue 2). https://www.abacademies.org/articles/Investigation-of-The-Impact-of-Financial-Information-on-Stock-Prices-The-Case-of-Vietnam-1528-2635-22-2-198.pdf
Dodonov, V. (2020, May 18). Effect of financial statement release on stock prices . Medium. https://towardsdatascience.com/effect-of-financial-statement-release-on-stock-prices-97932b2cb05
Patro, A., & GUPTA, V. K. (2016). Impact of international financial reporting standards on stock price synchronicity for Asian markets. Contemporary Management Research , 12 (1), 61-88. https://doi.org/10.7903/cmr.14160
Viet Ha, H. T., Hung, D. N., & Dung, T. M. (2018). Impact of accounting data on stock prices: The case of Vietnam. International Journal of Accounting and Financial Reporting , 8 (1), 140. https://doi.org/10.5296/ijafr.v8i1.12671
Wambugu, M. W., & Essajee, A. (2016). The effect of voluntary financial disclosures on the stock returns of firms quoted on the Nairobi Securities Exchange. International Journal of Finance and Accounting , Vol.1 (Issue 1 No.1), pp 45-60.
