Information Content of Firms' Monthly Activity Reports

Objective: According to the instructions of the Tehran Stock Exchange Organization, companies admitted to the stock exchange are required to publish their reports and financial statements and other important information that can affect the price of the company's securities or investors' decisions based on accounting standards. One of these reports is the monthly activity report, which companies admitted to the stock exchange and over-the-counter must publish in the Codal Website within 5 working days after the end of each month. And if approved by the organization, it can be extended up to 10 working days. The researches carried out in relation to the content of the published information are mainly based on annual and quarterly earnings and income reports. Because firm earnings and income are always disclosed simultaneously in such studies, an unanswered question is whether windfall earnings alone, which are mainly influenced by company sales, can affect stock prices, in other words, change in monthly sales of firms can contain important information or not. In this research, due to the fact that monthly sales and quarterly profits are disclosed on different dates, an attempt is made to investigate the effect of disclosed sales on stock returns. Considering that it is expected that the publication of the monthly activity report of the firms will contain information content about their activities and performance, therefore it is expected that the market will show a reasonable reaction to the publication of these reports.
 In the monthly activity report of firms, the income of sales of goods and services of the firm is reported. This report has been provided to investors through the codal.ir since 2017. The usefulness of this report for investors can be examined by evaluating its informational content.
Method: It is an event research. In such researches, the time of information release is considered as the time of the determining event and the price changes around it as a criterion to evaluate the market reaction.
To evaluate the information content of sources, two main criteria including price-based and volume-based tests are used. The price-based test makes it possible to evaluate the market reaction on a certain day or a certain period of time through the way the price changes. This criterion is based on the theory that the price correction will occur simultaneously with the increase in the accuracy of information or disclosure. The volume-based test reflects the reaction of the trading volume at the time of the announcement or a desired period compared to the period when the relevant information has not yet been disclosed. Price-based tests reflect changes in the expectations of the market as a whole, while changes in trading volume reflect the expectations of individual shareholders in the company.
Research hypotheses have been formulated based on the presence of good news or bad news based on the market's reaction to them. If the monthly activity report contains messages about changes in the firm's performance, market participants react differently to these changes (good or bad). In the research hypotheses, the change in the firm's performance that will contain good or bad news is defined based on unexpected sales.
 In this study, to evaluate the information content of the monthly activity report of firms, price changes and trading volume around the announcement time have been considered. Based on data related to 234 firms during the years 2017 to the end of Shahrivar 2020 and event study methodology, the market response to these reports has been studied.
Results: The findings show that the monthly activity report contains important information for the market. The market reacts appropriately to published reports containing good news or bad news. With the release of good news, stock prices increase, and following the bad news, stock prices decrease, which in any case, the trade volume around the publication of the monthly activity report of firms, a significant increase is observed.
Conclusion: The results of this research showed that the publication of the monthly activity report contains important information content that market participants react to. The results show that the market reacts quickly to reports that contain good news (the actual performance is better than the firm's expected performance), and as a result, the stock price and trading volume increase on the day of publication and two days after that, as well as the market reaction. Also, the market's reaction to reports containing bad news is accompanied by a decrease in price and an increase in trading volume on the day of the event and three days after the event.
 Monthly activity report as one of the information has important messages related to the current performance of companies. Investors can adjust their short-term strategies based on their forecasts of current firm performance, prior to the announcement of quarterly earnings.