Positive Abnormal Returns Research Articles

I Feel Your Pain: The Effect of Regulator as a Minority Shareholder on Merger and Acquisition Performance

We examine the effect of a regulator‐led advocate for minority shareholders on merger and acquisition (M&A) performance in China. In recent years, the China Securities Regulatory Commission established the China Securities Investor Services Center (CSISC), which began its ownership of 100 shares of public firms in 2016. The CSISC advocates for the interests of minority shareholders proactively. Focusing on abnormal stock returns in M&A announcements, we find that acquirers that have the CSISC as a shareholder (CSISC acquirers) exhibit higher positive abnormal stock returns than non‐CSISC acquirers. Cross‐sectional analysis suggests that the core results are mainly driven by firms with severe agency problems and weak external/internal monitoring, and those not controlled by the state. In addition, we find that CSISC acquirers have better long‐term performance and encounter more M&A failures than non‐CSISC acquirers. Our findings indicate that although the CSISC only holds 100 shares of listed companies, it plays an effective role in monitoring and driving firms to make appropriate M&A decisions.

The Different Dividend Signaling Effect under Tax Deduction around Ex-Right Day: Evidence from Taiwan Stock Exchange

Dividend tax policy is one of the important tools of government taxation. Observing the dividend tax policy and the behavior of stock prices around ex-rights will not only shed light on investment strategies, but also give us a clearer understanding of the microstructure of the capital market. Taiwan went through dividend tax policy and National Health Insurance (NHI) supplementary premium changes from 2014 to 2016. Therefore, this paper adopts the event study method to conduct empirical research on this major event period. The research conclusion points out: (1) During the research period, the company studied had a positive cumulative abnormal return before and on the ex-right day, and there was a negative cumulative abnormal return after the ex-right day. (2) When the tax reduction effect is more favorable to investors, there will be only a positive relationship with positive abnormal returns. (3) There is no statistical significance between the dividend tax reform policy and the negative abnormal return after ex-rights. The empirical results of this paper can help to better understand the pricing process of stocks by market microstructure systems such as dividend tax policies and help build a more stable stock market transaction structure. On the other hand, investors and companies can also gain their own investment or dividend policy inspiration from this research.

DAMPAK KEBIJAKAN PEMBERLAKUAN PEMBATASAN KEGIATAN MASYARAKAT (PPKM) DARURAT TERHADAP REAKSI PASAR SAHAM SEKTOR KESEHATAN (HEALTHCARE) PADA BURSA EFEK INDONESIA: SEBUAH PENDEKATAN EVENT STUDY

This study aims to examine the information content contained in the announcement of the emergency Community Activity Restrictions policy announcement on July 1, 2021 which was carried out by analyzing abnormal returns and trading volume of healthcare sector activity in the period surrounding the event. This research is a quantitative research with an event study approach. The data analysis tool used to test the hypothesis in this study is the one sample T-test statistical test on the abnormal return indicator and the Paired sample t-test on the trading volume activity indicator. The results of the t-test indicate that there is a positive abnormal return on the main board stocks, thus proving that the market responds to the event as good news. Meanwhile, on the development board stock, there is an abnormal return that has a negative value, thus proving that the market responded to the event as bad news. It can be concluded that the healthcare sector stock market responds to the emergency PPKM announcement differently according to the characteristics of the stock listing board. The results of the different Paired Sample T-test on the average trading volume activity (ATVA) indicator before and after the emergency PPKM announcement show that there are differences in ATVA on the main board and development board stocks. This difference may be caused by the behavior of investors who sell or buy stocks in the health sector based on the category of the stock listing board

The Impact of COVID-19 and Administrative Interventions on Stock Returns: New Insights From Sectoral Analysis

We examine the impact of the COVID-19 pandemic and the administrative interventions on stock returns across 21 sectors in India. Almost all sectors reacted negatively to the pandemic announcement on 11 March 2020. The early lockdown resulted in negative abnormal returns. However, this effect was transitory as investors gained confidence and some sectors quickly revived. The unlocking led to positive abnormal returns across all sectors, except chemical products.

Cross-Border Acquisitions and Shareholders’ Wealth: The Case of the Indian Pharmaceutical Sector

Cross-border acquisitions by Indian companies have increased tremendously, especially during the last two decades, and the pharmaceutical industry is one of the top acquiring industries. This study verifies the relationship between cross-border acquisitions and shareholders’ wealth in the Indian pharmaceutical sector. For this purpose, the data related to acquisitions were acquired from 2005 to 2019 and the event study methodology was applied along with two parametric tests. The findings of the current research prescribe that cross-border acquisitions have a positive and significant impact on shareholders’ wealth. Furthermore, the outcomes also indicate higher positive abnormal returns in the short run when the targets are based in the US and the UK as compared to the positive but insignificant abnormal returns when the targets are based in locations other than the US and the UK.

Trading Opportunities around Morningstar Stock Rating Changes

The authors examine Morningstar information changes stemming from changes in their 5-Star stock-rating system. Converse to many studies of other second-hand information effects, Morningstar rating changes lead to abnormal returns (ARs) that persist for 30 days subsequent to the information release. This information may be used to derive alpha-generating trading strategies. Statistically significant positive ARs persist for 30 days postannouncement for upgrades to 4 and 5 stars, while significant negative ARs persist for 30 days postannouncement for upgrades to 2 and 3 stars and for downgrades to 4, 3, 2, or 1 star. Traders can use this information to devise long, short, and long–short trading strategies. Morningstar’s analysis has high credibility, particularly with retail investors. Morningstar changes a stock’s rating when the price of the stock moves farther from the intrinsic value estimate derived by Morningstar’s model, suggesting that its analysis of the current stock price relative to intrinsic value and the timing of the rating change provide some relevant information to the market.

The price reaction and investment exposure of equity funds: evidence from the Russia–Ukraine military conflict

PurposeThe purpose of this paper is to assess the impact of the Ukraine–Russia military conflict on the returns and investment flows of equity funds across multiple countries.Design/methodology/approachUsing a comprehensive sample of 1,281 equity funds in 40 countries. The countries were segregated into conflict states, members of NATO, and those which abstained from voting on the UN resolution on March 2, 2022. The authors employ a GARCH-based event study and estimate CARs for t−5, t−3, t, t + 3, and t + 5 event windows. Further, the authors use panel estimation to assess the link between the CARs and the investment exposure of the sample funds.FindingsThe findings highlight an adverse reaction of mutual funds in Russia, Ukraine, and the NATO States. On the contrary, the mutual funds in the countries that abstained during the voting on the UN resolution on March 2nd posted positive abnormal returns. Similarly, the investment exposure towards the conflicted countries and NATO states is unfavorable except for the abstained countries.Originality/valueThis is the primary study to evaluate the impact of the recent geopolitical tensions on mutual funds domiciled across various geographical locations.

Do uninformed traders move prices? Evidence from the Bank of Japan's ETF purchasing program

AbstractUsing the Bank of Japan (BoJ) ETF purchasing program as an exogenous shock to stock demand, we find that stocks with a higher BoJ demand experience higher positive abnormal returns on BoJ ETF purchase dates, which only partially revert in the long term. Our findings support the hypothesis that stocks have a downward‐sloping demand curve, implying that uninformed traders can cause a permanent shift in price.

CEO turnover, political connections, and firm performance: Evidence from China

In our analysis of 5738 CEO turnover events among A-share listed companies in China over the period of 1993 to 2019, we find that CEO turnovers on average hurt companies' market performance with significant negative abnormal returns in the event window. We then group the companies into four types based on whether the outgoing and successor CEOs have political connections, and then calculate the abnormal returns in the event windows of CEO turnovers once announced. We find that companies generally enjoy positive abnormal returns if they replace politically non-connected CEOs with connected ones. Such a positive effect is more evident among non-state-owned enterprises (non-SOEs), companies with worse performance, and companies with higher financial constraints. However, abnormal returns derived from hiring politically connected successor CEOs turn to negative following China's massive anti-corruption campaign in 2012. Our findings provide direct estimations of the economic value of CEOs' political connections for A-share listed companies in China and reveal boundary conditions that moderate the influence of hiring politically connected CEOs.

Do Sectoral Indices React Differently to Lockdowns Imposed Due to Covid-19? Lessons for Wealth Generation

This research paper is an attempt to study the impact of Covid-19 on the sectoral indices using Event Study Methodology (EVM) and regression models. It tries to analyze the differences in mean returns of one composite and ten sectoral indices on India’s premier National Stock Exchange during four periods-before lockdowns, during the lockdown, during unlocking and post unlock. The analysis is based on 15346 daily observations. Imposition of Lockdown is found to have a positive impact on the daily mean return of the eleven Nifty indices under study. The mean returns of sectoral indices are compared using non-parametric tests. The mean returns across four periods are compared using Friedman’s ANOVA and are found to be significantly different over the four periods. Post Hoc Analysis using Wilcoxon signed-rank test revealed that the daily mean returns during the lockdown were more than the daily mean returns during the period before lockdown, during unlock period or post unlock period. Kruskal Wallis test was used to investigate the equality of means of eleven indices found, mean returns of indices to be equal to each other during all the four alternate periods studied separately. GARCH (1,1) model is then used to estimate returns and variance of sectoral indices A significant portion of variances in sectoral index returns was explained by the variances in market proxy Nifty 50. The study highlights the emerging relevance of the Energy, FMCG, Healthcare, IT and Pharma sector during the lockdown as the abnormal positive returns have increased in these sectors. Infrastructure, Media and realty sectors have been severely affected due to the lockdown. The robustness of estimated parameters is checked by using a dummy variable regression model and it is found that stock markets were strengthening during the period of lockdown. The results of the dummy variable regression model are in line with the results of the Event Study Methodology (EVM) and GARCH (1,1). Overall, the imposition of lockdown as a policy initiative by the Government of India helped in mitigating the effect of Covid-19 on the stock market.

Çevresel, Sosyal ve Yönetişim (ESG) Haberlerinin Firmaların Finansal Performansına Etkisi: Borsa İstanbul’dan Kanıt

Sürdürülebilirlik ile ilgili her geçen gün artan farkındalık, firmaların çevresel (Environmental), sosyal (Social) ve yönetişim (Governance) olarak kısaca ESG olarak adlandırılan sürdürülebilirlik faktörlerini, verdikleri her kararda ve atacakları her adımda dikkate almalarına sebep olmaktadır. Bu çalışmada Borsa İstanbul’da işlem gören firmalar ile ilgili çıkan ESG haberlerinin piyasa tarafından nasıl algılandığı, bu firmaların hisse senedi getirileri kullanılarak olay çalışması metodolojisi ile incelenmiştir. Firmalar hakkında çıkan olumsuz ESG haberlerinin sadece %10’a yakınının firmalar için anormal getiriye neden olduğunu gösteren sonuçlar ESG haberleri içerisinde negatif anormal getiriye neden olan haberlerin oranının pozitif anormal getiriye neden olan haberlerin yüzdesinin iki katı kadar olduğunu da göstermektedir. Türkiye’de borsada işlem gören bazı firmalar için yatırımcıların kararlarında halen firmanın gelecekteki finansal performansının daha önemli olduğu ve artan sürdürülebilirlik farkındalığı ve ESG okuryazarlığına rağmen henüz sürdürülebilirlik ile ilgili haberlerin anormal getiriler üzerinde büyük bir etkisi olmadığını söylemek doğru bir analiz olacaktır.

The impact of ESG on financial performance: a revisit with a regression discontinuity approach

This study revisits the question of “whether firms are doing well by doing good?”. We examine shareholders-sponsored corporate socially responsible (CSR) proposals related to Environmental, Social, and Governance (ESG) that are voted to pass or fail by a small margin. The adoption of those “close call” proposals is regarded as equivalent to a random assignment of CSR policies and, therefore, provides a quasi-experimental setting to capture the causal influence of CSR on firm performance. We apply the regression discontinuity design (RDD) and find that CSR proposals’ passage leads to a significant positive abnormal return on the voting day. The results are robust with both parametric and nonparametric approaches of RDD and different polynomial orders. However, we fail to identify a significant change in financial performance in the long-term. One possible reason is that passing a CSR proposal could be symbolic, rather than substantial.

Climate Change Vulnerability and Currency Returns

Using measures of physical risk from climate change, we develop a methodology to allocate currency pairs according to a country’s vulnerability and construct portfolios with decreasing vulnerability to physical risk. We show that non-G10 currencies are more vulnerable to physical risk, have become less vulnerable over time, and that the vulnerability measure is correlated with higher losses from natural disasters. Portfolios exposed to currencies with decreasing vulnerability have exhibited positive abnormal returns, with the abnormal return coming from currencies that have relatively high levels of vulnerability. These results exist in non-G10 currencies, while no relation is found within G10 currencies.

The aftermarket performance of initial public offerings: New evidence from an emerging market.

This paper presents new updated evidence on the initial public offering (IPO) aftermarket performance for 144 public listed firms on the Colombo Stock Exchange from 1991 to 2017. We found that average aftermarket returns are always lower than 1%. On average, buy and hold abnormal returns are negative in a short period, and abnormal returns gradually become positive over a longer period (12.46% in 3 years). Further, aftermarket returns are positively related to investor sentiment and the annual volume of listings while being negatively related to initial returns, which is consistent with the divergence of opinion hypothesis. We suggest that investors should hold their subscriptions of IPO shares for a prolonged time, usually exceeding two years, as the dynamic of shares rewards the investors with positive abnormal returns in the long run.

CEO Political Leanings and Store-Level Economic Activity during the COVID-19 Crisis: Effects on Shareholder Value and Public Health.

ABSTRACTMaintaining economic output during the COVID‐19 pandemic results in benefits for firm shareholders but comes at a potential cost to public health. Using store‐level data, we examine how a CEO's political leaning impacts this trade‐off. We document that firms with a Republican‐leaning CEO experience a relative increase in store visits compared to firms with a Democratic‐leaning CEO. The increase in store visits is associated with higher sales and positive abnormal stock returns. However, we also document higher COVID‐19 transmission rates and more employee safety complaints in communities where establishments with higher store traffic are managed by a Republican‐leaning CEO.

The impact of governmental COVID‐19 measures on manufacturers' stock market valuations: The role of labor intensity and operational slack

This study investigates the impact of the Chinese government's Level I emergency response policy on manufacturers' stock market values. We empirically examine the roles of human resource dependence (labor intensity) and operational slack within the context of supply chain resilience. Through an event study of 1357 Chinese manufacturing companies, we find that the government's emergency response policy triggered statistically significant positive abnormal returns for manufacturers. However, we also find that there exists a negative impact on abnormal returns for manufacturers that are labor‐intensive, giving rise to arguments based in resource dependence theory. In addition, the results indicate the positive role played by operational slack (e.g., financial and inventory slack) in helping manufacturers maintain operations and business continuity, effectively mitigating risks and adding to the manufacturers' resilience. With these findings, we contribute to operations and supply chain management by calling attention to the importance of human resource redundancy while at the same time identifying financial slack and inventory as supply chain resilience strategies that were able to mitigate pandemic‐related risks.

Reference prices, relative values, and the timing of M&A announcements

The bidder's relative value with respect to the target (RV) and its 52-week reference values affect who bids for whom as well as the timing of public announcement for bidder-target pairs that announce deals. Deals that are announced when the RV is near its 52-week high feature more stock payment, higher offer premium relative to the target's pre-announcement price but a larger discount relative to the target's 52-week high price, result in more negative announcement returns for the bidding firm in both the short and long run, and are less likely to be completed. Yet, bidders in such deals also experience large and positive abnormal returns over the period from private initiation of discussions with the target to twelve months after announcement. Our results suggest that bidders use past values of RV as reference points to assess relative misvaluation and to strategically choose announcement timing.

Betting on Strategic Initiatives!? Human Capital and Insider Trading

We explore how the human capital (generalist or specialist) of managers is associated with their insider trading behavior and the performance of their trades. Examining insider trading associated with a firm’s announcement of new product introductions, which are an important class of firm strategic initiatives, we find that generalist board members engage in greater levels of insider trading before the new product announcements than specialists, and this effect is stronger when generalists have deep direct knowledge of the firm. Yet, while generalists earn positive abnormal returns, on average, from their insider trading, these positive abnormal returns are lower than those earned by their specialist peers, suggesting insider trading may be associated with human capital-related tradeoffs. Importantly, however, deep direct knowledge about the focal firm, which we theorize offers advantages for managers for applying their general knowledge to the firm’s strategic initiatives and a stronger positive trading signal to investors, enables generalists to increase their abnormal returns, and thus improve their insider trading performance. Overall, our study contributes to the literatures on strategic human capital, insider trading, and strategic initiatives and innovation in strategy.

Do Precautionary Corporate Cash Holdings Help During the Economic Shocks? Evidence from the Covid-19 Pandemic

The present study examines the validity of precautionary motive for cash holdings during various phases of the Covid-19 pandemic by establishing a causal relationship between firms’ cash holdings and their abnormal returns. Considering the Covid-19 outbreak as an exogenous event, listed Indian firms’ cumulative abnormal returns regressed on their pre-pandemic cash holdings and relevant firm-level control variables. Results indicate that during the early outbreak period of the pandemic, investors continue to value firms’ growth opportunities over the cash holdings. However, during the lockdown period which had a severe overall negative impact on the firms, firms with higher cash holdings generate significant positive abnormal returns. This supports the precautionary motive behind the cash holdings. During the economic recovery phase, firms with volatile earnings struggle to rebound. The agency cost perspective of cash holdings was found irrelevant during the severe economic crisis. From the risk-management perspective, findings also highlight the difficulty in estimating the optimal cash levels incorporating the black swan events like the Covid-19 pandemic.

Passive insider trading before pension freezes

AbstractWe study the patterns of insider trading surrounding pension freezes, a widespread corporate event that creates firm value and generates positive abnormal returns. We find that insiders—particularly nonsenior executive insiders (rather than senior executive insiders) and opportunistic traders (rather than routine traders)—effectively increase their net purchases by reducing their sales of company stocks 1 year before pension freezes. Such passive insider trading does not appear to be driven by liquidity needs or portfolio choices. Overall, our findings highlight the heterogeneity of insiders and limitation of existing insider trading regulations, calling for policy makers’ attention to this insider behavior.