Abstract:
This study analyses the shareholders’ responses to the announcement of the
changes in executive directors of the companies listed on CSE. Thereby we provide
a test of the semi-strong form efficient market hypothesis of Sri Lanka’s share
market by using event study mythology. The sample consisted of 66 listed
companies, which made 156 public announcements on the changes in the executive
director of CSE from 2009 to 2013. The Mean Adjusted Model, Market Adjusted
Model and Market Model along with proxy of the CSE All Share Price Index (ASPI)
were used in this study in generating abnormal returns surrounding each
subsequent announcement. Specifically, the Market model was used by
incorporating cluster volatility effect and information asymmetric effects to get a
strong conclusion. Apart from that Time Series models such as AR, MA, ARMA,
GARCH, TARCH and EGARCH were used in relation to the stylized facts of each
company returns within the sample especially to minimize the use of bias of the CSE
ASPI as a proxy in generating abnormal returns. Overall results of shareholders’
responses to the announcements of changes in directors announcements based on
each model along with the proxy of ASPI show a negative reaction to the information
subsequent to the announcements of changes in directors in CSE. The abnormal
returns appear prior to the actual announcement of the information, as well as after
the actual announcement of the information. It confirms that the shareholders
responded negatively before and after the actual announcement of the information.
In addition, these results confirm that the Sri Lankan Share market is inconsistent
with semi-strong form market efficient hypothesis. The findings will be important
to the investors, the managers of the companies and the stock exchange regulatory
agencies in their decision-making process.
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