Effects of Information Risk and Transaction Costs on Market Reaction to Earnings Announcement

This research examines effects of information risk and transaction costs on market reaction to earnings announcement. The sample includes 828 earnings announcement of 69 firms listed in Tehran Stock Exchange in the period from the first half of the year 2008 to the second half of the year 2013.The research hypotheses are tested using GMM dynamic panel data method. The research findings show that in the first half of the year, information risk has a significant negative relation with the market reaction to unexpected earnings; however, in the whole year period, there is no significant relation between these two variables. On the other hand, in the whole year period, transaction costs have a significant positive relation with the market reaction to unexpected earnings, however; in the first six months, there is no significant relation between these two variables. In other words, findings indicate that investors pay more attention to non-financial factors such as political and economic factors than financial factors such as information risk and transaction costs.