THE IMPACT OF THE DISCLOSURE OF EXTRAORDINARY ACCOUNTING ITEMS ON RETURNS TO EQUITY

This paper investigates empirically the impact on returns to equity of the disclosure of unexpected extraordinary accounting items, where unexpected extraordinary items are proxied by actual extraordinary items. The paper addresses some of the methodological limitations evident in previous studies. These limitations include the failure to identify the earliest information source, and the failure to identify the announcement month. The analysis in this study uses half-yearly reports instead of annual reports as used in previous studies, and identifies the month in which the interim results (and therefore the extraordinary items) are announced. Controls are provided for the contemporaneous announcement of operating profit and dividends, while interim reports with contemporaneously announced rights issues, bonus issues, share splits, or takeover offers, are excluded. However, one limitation which remains is the use of monthly returns. The use of daily data would provide a more sensitive test. Using cross-sectional regression analysis, no evidence was found of an association between announcements of unexpected extraordinary items and abnormal returns to equity.