Abstract:
This study investigates the stock market reaction on the release of annual f,rnancial
statements of listed companies in Colombo Stock Exchange for the periodiof 2014 to
2018. The annual financial statements announcement data and Daily closing share
prices were extracted from thirty listed companies in CSE for this study and the sample
belong to all the business sectors (20). The Standard Event Study Methodology is used
to examine the stock market response to annual financial statements announcement for
the event period of twenty-one days which is ten days prior to announcement date, ten
days after the announcement date and the announcement date. Event study method,
Paired sample t - test were applied to analysis collected data in relation to computing
the abnormal return, excess return, cumulative average abnormal return and hypothesis
testing surrounding the announcement day. The positive abnormal return indicate that
there is impact on share prices that means the share prices have been increased
sunounding the event date. The results indicate that the company's annual"financial
statements announcements are responded to investor decisions and to create a market
value. The findings shows that Average Abnormal Retums are positive and Cumulative
Average Abnormal Returns are negative on the announcement day but not significant
at 5o/o level. The positive reactions of investors could be attributed to the favorable
information in annual financial reports.
