This study examines the information content of earnings announcements in one of the emerging markets, Malaysia. While information content of earnings announcements has been widely researched in developed markets, it remains largely unexplored in emerging markets. In examining the properties of accounting earnings, specific institutional factors that might affect preparers' financial reporting incentives should be considered (Ball, Robin and Wu, 2002). Specific Malaysian institutional factors, such as the prevalence of family crossholdings, the close relationship between firms and banks, and the weak enforcement of insider trading laws, suggest that insider trading is likely to take place in Malaysia with low litigation risk. As such, it is predicted that insider trading activities are likely to reduce the information content of earnings announcements.
Based on a sample consisting of 1597 earnings announcements over the 1996-2000 period, the results indicate that share prices of Malaysian companies are insensitive to earnings announcements. The study concludes that this insensitivity is partly attributable to insider trading, an outcome stemming from the Malaysia's institutional structure. However, this result is not observed uniformly across all individual years. In addition, this study highlights the impact of the Asian Financial Crisis on the information content of annual earnings announcements for Malaysian companies.