Positive Abnormal Returns Research Articles

Multivariate Regression Analysis of the Impact of Open Market Share Repurchase Activity on the Malaysian Market

This research thesis revolves around the need to understand the relationship between share repurchases and the share price behavior of companies listed on Bursa Malaysia on a more recent basis given the economic stability in Malaysia and throughout the world from 2017 to 2021. It started in the West and reached maturity in the 1980s in the United States, but it only began in Malaysia in the 1990s. The studies of share repurchase are still considered an infant in Malaysia as in other countries throughout the world, companies pursue share repurchases for several reasons mainly to signal undervaluation, reward shareholders, defend against the takeover, utilize financial resources efficiently, and many more motives that are interesting for researchers to look at. Unlike other studies that look at announcement dates, since an announcement does not mean the companies will implement the transactions, this research is important since it looks at and analyzes the actual effective repurchase day done by established firms which is are most crucial aspect in analyzing the consequences and the results are that it shows positive abnormal mean returns for most of the companies. Event study methodology was used since this is the best empirical research method and as empirical evidence to analyze abnormal returns from all the other studies. The days observed are 120 days before and after the announcement. Returns for the estimation window, event window (repurchase day), and post-event window were analyzed to see the effects of price movement on repurchase activities at Bursa Malaysia (BSKL).

The American Inventors Protection Act and the staggered market reaction to patent grants

Starting in December 2000, the American Inventors Protection Act requires patent applications to be announced 18 months after filing rather than when the patent is granted. We document that while the application and the patent grant announcements are associated with positive abnormal returns, this staggered information flow reduces the reaction to patent grants post-2001. Furthermore, more innovative patents obtain larger abnormal returns around both the patent grant and the application announcement. Returns to less innovative patents, however, concentrate on the grant date, consistent with the market perceiving the applications as less likely to be approved.

The Addition of New Payment Method and Shareholder Value: Evidence From Cryptocurrency Adoption

ABSTRACT Despite the growing adoption of cryptocurrencies as a payment method, the literature lacks a comprehensive exploration of its performance outcome. To address this gap, authors examine the impact of firms’ adoption of cryptocurrencies as a payment method on shareholder value. Employing event study methodology, authors analyze the effect of cryptocurrency adoption announcements made by 27 U.S. firms between 2013 and 2020 on shareholder value. The results indicate that cryptocurrency adoption leads to positive abnormal returns, with an average of 0.65% on the announcement day. Further analysis reveals that firms’ advertising intensity amplifies the positive impact of cryptocurrency adoption on shareholder value. Additionally, non-retail firms tend to receive greater benefits from cryptocurrency adoption compared to retail firms.

Control risk premium: Dual‐class shares, family ownership, and minority investor returns

AbstractDespite exhibiting significant valuation discounts, dual‐class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low‐voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual‐class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual‐class firms in the Russell 3000. Interestingly, single‐class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual‐class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

An announcement effect in reverse? Evidence from cash‐settled convertible bonds

AbstractWe analyze the trading activity of underlying shares at the maturity of convertible bonds with cash‐settlement provisions. Our findings indicate that arbitrageurs and option dealers engage in systematic trading that leads to an increase in trading volumes and changes in the level of short interest in the affected underlying equities. We find significantly positive abnormal returns for the affected stocks if convertible bond‐related trading is not contaminated by opposing option‐related flows. This finding supports the notion that arbitrageurs can create a substantial market impact on shares underlying convertible bonds even without any relevant news dissemination.

Insider pledging: Its information content and forced sale

This paper investigates the information content of insider pledging and the forced sale of pledged shares using U.S. data. Contrary to warnings from proxy advisors and the media about insider pledging and suggestions for its prohibition, our findings show that insider pledging announcements do not negatively impact shareholder wealth. Firms with insider pledging experience positive one-year abnormal stock returns and higher future profitability after the disclosure of pledging, indicating that insider pledging signals a firm's better growth prospects. These positive abnormal returns observed after the disclosure of insider pledging are more pronounced in firms with better corporate governance and are associated with pledging by certain insiders with superior information. In addition, we find that the stock price does not significantly decline following the forced sale of pledged shares, indicating that the forced sale does not pose downside risks for shareholders. Overall, our results suggest that insider pledging is not detrimental to shareholder value in the U.S., contrary to findings reported in the literature on emerging markets.

Actively managed equity mutual funds in emerging markets

In this study, we analyze the performance of mutual fund managers who operate in emerging markets. Emerging stock markets differ from mature markets in significant ways, such as weak prosecution for insider trading, poor corporate governance practices, and a lack of liquidity, which create market inefficiencies that active investment strategies can exploit. We evaluate conditional alphas and multiple measures of liquidity, with a focus on equity funds that invest in emerging markets to achieve abnormal returns. Our analysis shows that smaller funds are significantly impacted by liquidity and that conditioning for public information has a significant effect on the distribution of returns. We find evidence of positive abnormal returns, which suggests that active management in emerging markets can be profitable.

The real effects of M&As on targets’ peers

AbstractThis paper studies the real effects of targets’ acquisitions on their peers through investigating the real earnings management (REM) behavior of the targets’ rivals following the mergers and acquisitions (M&As). Using a difference‐in‐differences design, we find that, on average, rivals of acquisition targets would engage in more REM after M&A announcements. We further find that within rivals of the target, the post‐announcement increase in REM is more pronounced when: (1) the rival is relatively less similar to the target; (2) the rival serves as the targets’ rival more than once within a year; (3) the target earns a higher bidding premium or positive abnormal returns; or (4) the rival has the higher institutional ownership or more analyst following. Additional analyses reveal that rivals engaging in more REM would have a higher likelihood of being acquired in subsequent years and would be sold at higher premiums. We also find that targets’ rivals boost their short‐term performance by engaging in REM activities at the cost of their long‐term performance. Our results are robust to various robustness checks. Overall, our evidence suggests that an acquisition activity could have a real effect on the target's industry, i.e., the effect on the accounting choices of the whole industry.

Moderating Effects of Dividend Policy Consistency and ROA on Firm Performance in M&A

The occurrence of a positive abnormal return is the dream of every investor in dealing with the decisions taken by the company, because it can provide its own benefits for stakeholders. Therefore, what can create positive abnormality around the announcement of company decision-making, especially Merger and Acquisition (M&A) decisions? To reveal several factors that can create positive abnormal returns around M&A announcements, this study aims to determine the effect of dividend-paying firms on short-term M&A performance which is moderated by the consistency of dividend policy and Return on Assets (ROA) and controlled by size. company using multiple linear regression model. The data used in this research comprises companies in Indonesia that conducted M&A during the period 2002-2021. The total number of observations in this study is 150, and the research employs the Ordinary Least Squares (OLS) technique for analysis. The results of this study indicate that dividend-paying firm has a significant positive effect on short-term M&A performance. The consistency of dividend policy cannot strengthen the positive relationship between dividend-paying firms and short-term M&A performance, but the firm's performance as reflected in ROA, strengthen the positive effect of dividend-paying firms on short-term M&A performance.

Global equity, commodities and bond market response to Israel-Hamas war

This study used event study methodology to examine the impact of Hamas’ terrorist attack against Israel in global equity, commodities, and bond markets. The results show that negative abnormal returns in global equity markets are limited to the Middle East region. The major world economies - China, Europe and the US, present insignificant abnormal returns. The increase in geopolitical risk, however, brings good news for commodities and bonds that observe significant positive abnormal returns with the intensification of the conflict. This result means that bonds and commodities are a hedge against stocks on average and a safe haven against conflict risk.

Voluntary disclosures by activist investors: the role of activist expectations*

Activist investors in a firm often voluntarily release information about their governance intentions to the public. Voluntary disclosure theory suggests that an activist investor will disclose when she expects other investors to respond positively and support her in upcoming corporate control contests. We find that activists’ disclosures are accompanied by positive abnormal returns, reductions in bid-ask spreads, and increases in future earnings relative to similar targets without voluntary activist disclosures. Disclosures by activists who demand a board seat (the most common demand) have the highest announcement returns, and disclosers also win proxy contests and directorships more frequently than non-disclosers. These findings suggest that the activist’s beliefs about investor response in both pricing and voting are an important driver of her disclosure choice.

ESG unpacked: Environmental, social, and governance pillars and the stock price reaction to the invasion of Ukraine

How do the individual pillars of environmental, social, and governance (ESG) factors perform in times of war? Focusing on euro area stocks around the Russian invasion of Ukraine in 2022, we investigate this question using an event study methodology. Our findings suggest that firms with higher governance scores experienced stronger abnormal positive stock returns, implying that investors particularly valued well-governed firms amidst the uncertainty and adversity. However, the importance of good governance was lower for countries with higher dependency on oil imports from Russia. In contrast, social and environmental considerations appeared to receive less attention from investors during this crisis period. Our study highlights the heterogeneous nature of ESG factors and underscores how their relevance can be context-dependent, especially in uncertain times marked by geopolitical conflicts.

The Wikipedia effect: Analyzing investor attention for strategic investment decisions

The industries with the highest increase in Wikipedia page views are the telecommunications, consumer durables, and high-technology sectors. On average, firms with increasing views have higher returns, lower earnings per share, and higher price-to-earnings ratios. Moreover, long-short investment strategies using changes in Wikipedia page views yield profitable portfolio returns, outperforming the market. Factor model regressions demonstrate that these portfolios exhibit positive abnormal returns relative to various benchmark models. In particular, the high-minus-low portfolio shows statistically significant alphas that common risk factors cannot explain. The findings suggest that changes in firms’ Wikipedia page views are a valuable indicator of stock performance.

Corporate insider purchases and the options market: Competition among informed investors

Corporate insiders have superior access to information; their trades, particularly purchases, should be informative. However, the extent of their informational advantage may be limited by the presence of other informed market participants. We document less frequent insider purchases in stocks with relatively high options trading activity. These purchases are followed by negligible abnormal returns. In contrast, stocks with less active options trading experience more frequent insider purchases, which yield positive abnormal returns over the subsequent six months. Our novel approach highlights the options market's role in screening uninformed insider trades, which ultimately contributes to more efficient stock market price formation.

Market value and environmental performance of carbon management systems: An international investigation

This study examines the financial and environmental effects of carbon management systems (CMSs) used in publicly traded companies worldwide. Market reactions to companies that announce the adoption of a CMS are analyzed, as are changes in greenhouse gas (GHG) emissions for CMS adopters. A method for conducting international event studies is introduced, and a Monte Carlo simulation indicates that such a method may be necessary to avoid bias. Empirical results suggest that CMS adoption announcements might not generate positive abnormal returns across a variety of specifications. In contrast, estimation results suggest that adoption of a CMS may mitigate increases in GHG emissions.

Giao dịch của người nội bộ và những ảnh hưởng lên giá cổ phiếu tại Việt Nam

The paper examines the effect of insider trading on stock prices of non-financial companies listed on the Vietnam stock market in the period of 2010-2019. Using event study methodology, the empirical results show that there are abnormal returns surrounding announcements of trading activities of insiders in Vietnam. More specifically, there are positive abnormal returns when buying announcements of insiders and there are negative abnormal returns when selling announcements of insiders. In addition, the study also shows factors affecting positively the abnormal returns around announcements of insider trading events, such as dividend per share, return on assets, insiders who are member of the Board of Directors and the number of insider trading stocks.

Does financial stability communication affect financial asset prices? Evidence from the Bank of England's communication experiment

AbstractThis paper examines the Bank of England's (BoE) communication on financial stability between 2013 and 2018. We apply an event study to determine the communication effect on financial institutions' stock market returns. We find that the BoE's announcements generate negative average abnormal returns for non‐banking and banking systems, including the Global Systemically Important Banks. The same effect emerges when we consider the communication's tone. Furthermore, we construct a macroprudential decision communication index and show that the negative impact of the BoE's tone is significant only when the decision communication index value is above average. Moreover, we find evidence that negative abnormal returns tend to appear after the Brexit referendum, while we find positive abnormal returns before that date. Besides, we do not identify a noticeable effect related to communication practices.

Inventor CEOs and financing of innovation: Evidence from IPOs

We examine the role of inventor CEOs—those with personal hands-on experience of innovation—in the financing of innovation. Using a sample of technology initial public offerings (IPOs) in the US, we document that inventor CEOs are associated with lower underpricing at the time of the IPOs. Inventor CEOs also appear more capable of taking their firms public during “cold” IPO market periods when financing conditions are more difficult. Analyses based on regulatory changes and a founder-only sample suggest that these relationships are causal. Further, inventor-led firms appear to invest the IPO proceeds more productively, as reflected in the firms’ superior innovation outcomes in the post-IPO period. The stock market fails to fully understand these relationships, and IPOs led by inventor CEOs produce large positive abnormal returns in the three years following the offering. Our findings are consistent with inventor CEOs facilitating innovation financing for startup firms by effectively reducing information asymmetry and valuation uncertainty of firm's innovation capital for outside investors.

Stock market response to natural disasters: Does corporate sustainability performance make difference?

This study aims to examine the short-term price reactions of the stocks listed on Borsa Istanbul (BIST) after the severe earthquake of February 6, 2023, that happened in the southeastern region of Türkiye covering 11 provinces and causing more than 50,000 fatalities. Using a sample of 450 companies listed on the BIST All Index, this study estimates the abnormal returns (ARs) of stocks by employing an event study methodology. Using BIST 100 companies as a sub-sample, this study also explores whether sustainability performance creates resilience against downside risk after the earthquake. The results of the market model and the mean-adjusted model show that on the event day, most of the sectors had negative and significant ARs, while only the non-metal mineral products had positive and significant ARs. Most of the sectors continued to decline in the following 10 days except basic metal and non-metal mineral products sectors. The telecommunications sector was the most negatively affected sector in both models after the event day as it has underperformed in ensuring uninterrupted access to communication. The findings also indicate that firms in the financial sector that have higher sustainability performance are more resilient in responding to the disaster.

The effects of the Russia–Ukraine war and the Wagner Group coup on defense stocks in Europe: an event study analysis

Purpose This study aims to examine the impact of the beginning of the Russia–Ukraine war and the Wagner Group’s attempted military coup against Putin’s regime on the European defense sector, consisting of weapons manufacturers. Design/methodology/approach The authors use the event study methodology to quantify the impact. That is, the authors assume that markets are efficient, and abnormal stock returns around the event dates capture the magnitudes of the impacts of the two events studied on European defense sector companies. The authors use the capital asset pricing model and two different multifactor models to estimate expected stock returns, which serve as the benchmark necessary to obtain abnormal returns. Findings The start of the war on February 24, 2022, when the Russian forces invaded Ukraine, was followed by high positive abnormal returns of up to 12% in the next few days. The results are particularly strong if multiple factors are used to control for the risk of the defense stocks. Conversely, the authors find a negative impact of the rebellion initiated by the mercenary Wagner Group’s chief, Yevgeny Prigozhin, on June 23, 2023, on the abnormal returns of defense industry stocks on the first trading day after the event. Originality/value To the best of the authors’ knowledge, this is the first study of the impact of the Russia–Ukraine war on the defense sector. Furthermore, this is the first study to measure the financial implications of the military coup initiated by the Wagner Group. The findings contribute to a rapidly growing literature on the financial implications of military conflicts around the world.