THE IMPACT OF FINANCIAL NEWS AND PRESS FREEDOM ON ABNORMAL RETURNS AROUND EARNINGS ANNOUNCEMENT PERIODS IN THE SHANGHAI, SHENZHEN AND TAIWAN STOCK MARKETS

We set out in this study to examine the impact of news sentiment and press freedom on cumulative abnormal returns (CARs) around earnings announcement periods; our focus is on the stock markets of Greater China, comprising of the Shanghai, Shenzhen and Taiwan stock markets. The news sentiment ratio is calculated using content analysis under the semantic orientation approach, with our empirical results revealing that news reports released prior to the earnings announcements made by firms have significant negative impacts on the CARs of the stocks of such firms following their announcements. We also find that press freedom may reduce the explanatory power of news reports on positive abnormal returns. The greater (lesser) the level of press freedom in a particular market, then the weaker (stronger) the level of information asymmetry, which can lead to a reduction (increase) in the risk premium, ultimately resulting in lower (higher) CARs.