From Reports to Returns: Evaluating Due Diligence Scores and Stock Market Dynamics under the Norwegian Transparency Act

Abstract

This study examines the relation between the publication of due diligence reports mandated by the Norwegian Transparency Act and the corresponding stock market reaction for listed companies at the Oslo Stock Exchange. Additionally, we explore whether the reporting quality has any impact on the effect. Using event study methodology, we estimate abnormal return for 100 firms to analyse whether the publication of due diligence reports significantly influences the stock prices. Results of the empirical study indicate that the due diligence reporting is statistically significant in explaining abnormal return in longer event windows. Furthermore, we conduct a content analysis of the inaugural reports in our sample to assess the quality of the reporting. The cross-sectional regression analysis finds no significant relationship between the report quality and abnormal returns. Finally, we examine whether being classified as a company in a risk-exposed industry impacted the quality of the reports. The results indicate no significant connection between the assessed report quality and industry type.