Event study methodology – what for, how and for whom?
Event study methodology – what for, how and for whom?

Summary/Abstract: Event studies make it possible to quantify the market reaction to releases of various types of information. An event study is one of the few tools that may be used to determine a causal effect. The aim of this paper is to present and explain an algorithm for conducting an event study that academics and practitio-ners who represent the accounting discipline may apply to investigate the market reaction to various events, such as releases of accounting information. The algorithm comprises six steps: 1) identifying the event that is going to be examined, 2) selecting companies, 3) identifying when information about the event was released and identifying the event window, 4) choosing an estimation window, 5) choosing and estimating a model of normal investor behavior, and calculating the abnormal level of investor behavior, 6) verifying statistical hypotheses with the use of parametric and non-parametric tests. The paper fills the research gap by presenting the kernel of an event study and the usefulness of event studies in empirical accounting research. Analysis and critique of the literature are used as the research method

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