On January 20, 2005, Barron’s reported that Technoid Inc. posted record 2004 fourth-quarter results. Despite $21.5 million in losses from the December 2003 currency devaluation in a key foreign market and losses on currency hedging, earnings grew to $0.91 per share from $0.59 in the same quarter of 2003 on a revenue growth of 49%. Furthermore, Technoid captured the leading market share position, with shipments up 50% from 2003 and with a slightly higher profit margin.

Nevertheless, on the same day, Technoid’s share price fell by $5.50, a decline of about 13%. Barron’s reported that analysts had been expecting earnings of about $0.96 per share. Also, there were concerns about Technoid’s scheduled introduction of new products in March 2005 following a warning by Technoid’s CEO that first-quarter, 2005 earnings were likely to be “flat.”

Assume that the $21.5 million in losses from foreign currency devaluation and currency hedging are a provision (i.e., an accrual), not a realized cash loss, at the end of the fourth quarter. Use the anomalous securities market results of Sloan (1996) to explain why the market price fell.

Answer rating: 100% (QA)

ANS WER One potential explanation for why the market price fell despite Techn oid s strong overall r... View the full answer