Firm Announcements Research Articles

Information leakage prior to market switches and the importance of Nominated Advisers

This study tests the information leakage hypothesis prior to the public announcement of firms switching between the Alternative Investment Market (AIM) and the Main Market (MM) in the UK. We find significant abnormal stock returns 60 trading days prior to the announcement of these switches. The results are robust after controlling for switching anticipation, rumors, other major corporate announcements, and firm performance one year prior to the switch. We also show that having a reputable Nominated Adviser (Nomad) significantly moderates the abnormal stock returns prior to market switches. However, this effect does not hold when Nomads also act as brokers in firms that switch markets. Overall, these findings provide novel evidence about abnormal stock returns prior to the announcement of market switches in the UK and the role of Nomads. As such, we shed light on the significance and the limits of decentralized regulation on informed trading activity.

Employee ownership in China: new evidence

PurposeWith specific big-data mining worked on 61,522 firm announcements, we discovered a diverse Employee Share Ownership Plan (ESOP) model in China, called “Core-Staff-Based ESOPs.” Distinct from standard broad-based or executive-based ESOPs, these specific targeted-broad-based ESOPs require the qualification for participants, involving the participation of senior executives, directors at the middle level and any other employees that make particular contributions to firms. We take on the challenge to analyze ESOP mechanism, firm characteristics and performance in the view of organizational ecology and resource-based choice-making, and explore which factors have influenced the ESOP development in China.Design/methodology/approachWe utilize a combination of approaches including qualitative and quantitative methods, and construct the main database of 117,767 firm-quarter data.FindingsFirstly, based upon our institutional research, we find no coercive mechanisms that force all the Chinese listed firms to implement ESOPs since 2005. Secondly, our binary logistic regressions identify ESOP firms’ specific properties significantly distinct from non-ESOP firms, and draw profiles for these ESOP firms. Thirdly, our panel regression test results sustain the rational of ESOP mechanism, demonstrating that ESOPs enable Chinese firms to improve performance both in profits and their industry positions. Finally, with further quantitative tests, we find out this ESOP design’s limitations and the heterogenous effects due to China’s environments.Originality/valueThe discovery of Core-staff-based ESOPs contributes a diversity to the standard framework of ESOPs, enhances our understanding of China’s ESOP development, and provides new evidence for ESOP performance.

The Influence of Ownership Concentration on Sustainable Merger and Acquisition Performance: Navigating Principal Conflicts in the Korean Market

This study examines the dynamics of owner behavior, agency costs, and M&A outcomes in the Korean market, aiming to explore how ownership concentration influences conflicts among principal groups and impacts M&A performance. Using empirical data from Korean M&A transactions, we analyze the effects of ownership concentration and cash payment preferences on firm value. Our findings indicate that while ownership concentration can reduce owner–manager conflicts, it heightens principal–principal conflicts, especially with moderate ownership, weak governance, or financial distress. Control-focused owners prefer cash payments, which can lower acquiring firm announcement returns under high ownership concentrations. Effective governance is crucial for fostering responsible decision-making and sustainable practices in M&As. This research underscores the importance of balanced ownership structures and robust governance mechanisms in mitigating agency conflicts and promoting sustainable M&A performance.

Idiosyncratic volatility and firm-specific news: evidence from the Chinese stock market

This study investigates the effect of firm-specific news on the pricing of idiosyncratic volatility (IVOL) in China. Using a sample of non-financial A-share listed firms from January 2006 to June 2018, we find that the predictive ability of IVOL is much weaker around firm announcements compared to that without news, suggesting that the limited arbitrage cannot disentangle the IVOL puzzle completely in the emerging market. Additionally, we investigate the effect of news sentiment on the predictive ability of IVOL and find that it is much stronger following bad news compared to good news. Finally, when we include the macroeconomic variables known to predict returns to adjust the systematic risk, we obtain novel findings that the negative premium of IVOL becomes insignificant, suggesting that the negative premium is time-varying with macroeconomy.

Managerial confidence and capital structure announcement effects on share prices on the Johannesburg Share Exchange

Background: In an attempt to enhance our understanding of the important determinants of the debt–equity choice, there is a need to explore the behavioural facets driving the decision to issue either debt or equity. Furthermore, the divergent set of implications of equity and debt issues on the share prices are empirical matters that need to be addressed.Aim: In this article the link is investigated between managerial confidence and the likelihood of issuing debt, as well as the share price implications of equity and debt issue announcements on the Johannesburg Share Exchange (JSE).Setting: The study is based on the equity bond issue announcements of JSE-listed firms for the period 2000–2020.Method: In this article, panel data regression and event study approaches are used in a sample of 81 and 113 bond and equity issue announcements, respectively, for 69 firms listed on the JSE.Results: The main findings of this article indicate that managerial optimism drives debt issuing activities on the JSE and that there are negative and significant abnormal returns associated with the announcement of equity issues.Conclusion: Overall, we conclude that behavioural finance is an important factor driving capital structure decisions, and that signalling, as well as market-timing concerns drive share price reactions on the JSE.Contribution: This article highlights the importance of behavioural factors in capital structure decisions and identifies the firm-specific channels through which managerial optimism drives leverage. Additionally, the article sheds light on the role of signalling and market timing in capital structure decisions.

Pension funding and the cross section of stock returns - The case of Germany

We re-examine the relation between the funding of corporate pension plans and a cross-section of stock returns. In Germany, we observe an increasing funding of historically unfunded pension plans. Firms may freely choose to underfund or not even fund pension plans at all. We find that lower funding levels are related to higher unexpected future earnings and higher stock returns. In Germany, firms with lower pension funding levels perform better than expected by the capital market in contrast to the United States and the United Kingdom. The capital market's underreaction to the earnings announcements of firms with highly underfunded pension plans compared to firms with well-funded plans is higher for short- and long-time horizons. The underreaction is substantially lower for firms with more investor attention and less pension plan and firm opacity.

Can sports-based corporate social responsibility performance reflect firms' market values and risks? Intertemporal evidence from Taiwan iSports corporate award-winning firms

PurposeWith the growing popularity of sports in Taiwan, the Sports Administration under the Ministry of Education introduced the Taiwan iSports Corporate Award campaign. This emphasised sports for employees and assisted in developing and supporting corporate social responsibility (CSR) activities in the sports industry through collaboration with firms, thereby enhancing their corporate image, facilitating the recruitment of high-quality employees and highlighting healthy human resources and brand value. Can sports-based CSR performance reflect firms' market values and reduce their market risks? This study regards Taiwan iSports Corporate Award announcements as important sports-based CSR disclosures and incorporates financial econometrics to examine the relationship between the announcement of sports-based CSR performance and firms' market values and risks.Design/methodology/approachAn event study is conducted to clarify the reactions of the Taiwan iSports Corporate Award announcement event on the abnormal returns of award-winning firms during the 2016–2021 period, and a regression discontinuity design (RDD) model is employed to verify the robustness of the empirical results using the event study method.FindingsTaiwan iSports Corporate Award announcements are not significantly reflected in the positive abnormal returns of award-winning firms. No causal relationship is found between the two. However, there are signs of relatively less systematic risks when investing in award-winning firms than in the market.Originality/valueThis study provides empirical evidence and managerial implications for Taiwan iSports Corporate Award-winning firms. It effectively enables business operators, sponsors or investors to understand the reactions of announcing sports-based CSR performance on the financial market and provides references for corporate organizations' CSR and sustainable development.

How important are semi‐annual earnings announcements? An information event perspective

AbstractUsing a method that avoids the need to specify earnings expectations, we demonstrate that the period surrounding the semi‐annual announcement of Australian firms' earnings is, on average, an important source of information. Although there is substantial year‐to‐year variation, we observe no evidence of any significant time trend, and also conclude that a shift from Australian domestic generally accepted accounting principle to International Financial Reporting Standards did not impact the association between earnings announcement windows and stock returns. We also find no evidence that the informativeness of earnings announcements varies systematically with firm size, analyst following or economic news (i.e., positive vs. negative stock returns, profits vs. losses), although we do observe significant variation across industries. Our conclusion is further supported by contrasting the earnings release date with the days immediately prior to release, or high information days other than earnings announcement windows. Using a more precise event window relative to prior studies (i.e., 3 h vs. 3 days), we confirm that earnings announcements contain significant new information about fundamentals.

The Impact On Firm Value Of Announcements Of The Appointment Of An Information Technology Officer (Cxo) To The C-Suite

Technology-enabled disruptions have created challenges for firms in all industries and often originate from firms outside a firm's known competitors. Senior technology executives are often charged with leading the firm's response to these competitive threats, leveraging technology to drive innovation and create value. In recent years, senior technology leaders have emerged in the Top Management Teams (TMT), including the traditional roles of Chief Information Officer and Chief Technology Officer, and the emerging roles of Chief Data Officer, Chief Digital Officer, and Chief Innovation Officer, collectively referred to as CxOs. Researchers have begun examining the impact of CxOs using event study methodology and comparative studies of firm performance against peer groups. This research examines the impact of the presence of a CxO on firm outcomes with an event study, using, for the first time, the Fama-French 5 Factor model to examine announcements of CxO appointments, and finds that the firm announcements of CxO appointments result in significantly negative abnormal returns. This research adds to the growing research on how firms create value across both traditional and emerging CxO roles, identifying the role, firm, and industry factors that influence value judgments and the subsequent market reactions to a firm's announcement of the appointment of a CxO. The firm announcement of a CxO appointment appears to be perceived as a sign of potential instability, and therefore a risk to the important business/technology integration of these important roles.

The Benefits and Burdens of High and Low Social Approval Assets in Employment Restructuring

Prior research remains divided whether social approval assets are a benefit or burden when external observers make sense of firm behavior. By drawing on expectancy violation theory in the context of announcements of different types of restructuring decisions (i.e., downsizing and upsizing), we examine the conditions under which high and low social approval assets provide a benefit and burden. We do so by assessing the corresponding media coverage about these decisions. Our results of all restructuring announcements of firms in Germany between 2006 – 2019 suggest the following: high social approval firms face a burden in negatively perceived situations (i.e., downsizing announcements), whereas low social approval firms enjoy a buffer as media coverage is not as negative. In contrast, in positive situations (i.e., upsizing announcements), high social approval is of benefit as it translates into more favorable media coverage, whereas low social approval is a burden. The results of this study contribute to the discussion about the equivocal effects of social approval assets on external observers sensemaking. Our theorizing and empirical results explain in which situations, high or low social approval can be beneficial and burdensome for the same organization. Specifically, the context in which a high or low social approval actors are evaluated by external observers helps explain which mechanisms is more dominant.

Dividend reduction and stock price reaction in Indian market: is there a role of share repurchase?

PurposeThis paper aims to analyze the stock price reaction because of dividend reduction (DR) announcements in the Indian equity market, controlling for share repurchases.Design/methodology/approachThe sample comprises National Stock Exchange (NSE) 500 companies listed in the NSE Ltd. covering a time span from year 2009 to 2019. Using the event study methodology, the authors measure the impact of DR announcements on security prices around the event day. The authors also examine the price response to DRs at the interim stage versus the final stage and identify the factors that drive the decision to reduce dividends at the interim level versus final level.FindingsThe authors find that overall DR announcements negatively impact abnormal returns. Firms that experience stronger adverse price reaction following DR announcements resort to share repurchase in the same year to boost stock prices. The authors find that interim DRs create more negative price reactions than final DRs. Finally, firms experiencing lower levels of prior year earnings, firms with smaller sizes and overvalued firms tend to reduce dividends at the interim level instead of postponing the reduction to the final level.Originality/valueThis paper examines stock price reaction because of DR announcements of Indian firms. The sample comprises firms that reduce dividends with contemporaneous share repurchases as well as firms that reduce dividends without contemporaneous repurchase activity. To the best of the authors’ knowledge, studies on substitution effect of dividends with buyback in the context of Indian equity market are rare. Further, investigating the difference in stock price movement because of DRs at the interim level versus the final level is the unique contribution of this paper.

Private benefits of corporate philanthropy and distortions to corporate financing and investment decisions

AbstractResearch Question/IssueThis study examines whether private benefits of control, as measured by corporate philanthropic activities, distort corporate financing and investment decisions.Research Findings/InsightsWe find that corporate giving represents a private benefit of control that distorts corporate investment and financing activity, consistent with free cash flow agency theory. Corporate giving discourages managers from pursuing external financing, especially debt issuance, to minimize outside monitoring. It creates preferences for internally financed cash acquisitions for the same reason. These distortions reduce shareholder wealth. Following both the 2003 dividend tax cut and hedge fund activism, corporate charitable contributions fall while investment rises, suggesting suboptimal investment caused by managerial private benefit extraction. Acquisition announcements of firms making large charitable contributions show negative stock market reactions that are more pronounced for acquirers with poor corporate governance.Theoretical/Academic ImplicationsOur findings suggest that due to agency problems and managerial rent extraction, corporate philanthropic activities can distort corporate financing and investment decisions and yield corporate charitable contribution allocations that personally benefit a firm's CEO at shareholder expense.Practitioner/Policy ImplicationsAs corporate philanthropy imposes a significant cost to shareholders, managers may seek shareholder approval on corporate philanthropic activities. The Securities and Exchange Commission may also require timely disclosure of corporate donations.

Price reaction to rights issue announcements of family firms

This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.

Reputational damage and name changes: Impact of financial crimes

AbstractResearch QuestionThis study examines the relation between reputational issues and name‐change decisions among US financial firms. I examine if financial firm name changes are related to reputational concerns and whether or not financial firms try to distance themselves from misconduct by adopting a new name.Research Findings/InsightsI document that firms adopt a new name to disassociate themselves from reputational concerns. I find that investors react negatively to name‐change announcements for firms with reputational issues. My findings also suggest significant corporate upheaval following misconduct, such as dampening performance.Theoretical/Academic ImplicationsMy research is the first to investigate market reactions to name changes in the US financial industry. My paper utilizes several unique hand‐collected datasets of corporate wrongdoings, violations, frauds, and other financial crimes to measure firm reputation and test whether name changes are related to reputational concerns.Practitioner/Policy ImplicationsI not only measure pre‐event misconducts for name changes but also analyze the future firm performance following financial misrepresentations. My paper adds to the growing literature of firm reputation, brand image, and firm value.

Corporate social responsibility and firm value: evidence from Chinese targeted poverty alleviation

PurposeWhilst the relationship between corporate social responsibility (CSR) and corporate financial performance has been well documented, CSR has rarely been studied from the perspective of corporate poverty alleviation. This study aims to test whether participation in targeted poverty alleviation (TPA) affects firms' market value and to explore how the magnitudes of market value vary in different CSR environments.Design/methodology/approachBased on recent Chinese TPA initiatives and on 108 TPA announcements of Chinese-listed firms from 2016 to 2020, this study adopts an event study method to investigate the impact of firm's TPA announcements on the firm's market value. Then, the authors construct a cross-sectional regression to analyse different CSR factors that may affect market reactions.FindingsThe results demonstrate that TPA announcements can increase a firm's overall market value. Additionally, the results show that TPA way and firm ownership significantly moderate the market reaction, namely the positive reaction is more significant when the TPA announcements involve charity poverty alleviation rather than industrial poverty alleviation and for privately owned firms rather than state-owned firms.Practical implicationsThe empirical results help TPA practitioners obtain a nuanced understanding of whether and when to participate in poverty alleviation is worthwhile. This study also provides a reference for poverty alleviation work in countries with similar backgrounds.Originality/valueThis study not only provides empirical evidence for the consequences of poverty alleviation behaviour of firms in developing countries, but also complements the field of CSR research in developed countries.

Trade Linkage and Transmission of Geopolitical Risks: Evidence from the Peace Progress in 2018

Purpose - Using unexpected changes in geopolitical tensions on the Korean peninsula as a quasinatural experimental setting, we examine whether and how geopolitical risks travel across borders through firm-level imports and exports linkages. We also test whether the effects are driven by either imports or exports and assess whether firms can effectively hedge themselves against geopolitical risks.
 Design/methodology - We focus on a series of unanticipated geopolitical events taken place in Korea in 2018. Making use of the shocks to geopolitical climate, we identify five milestone events toward peace talks. We employ the event studies methodology. We examine heterogenous firm-level stock price reactions around key event dates depending on firms’ exposure to geopolitical risks. As a measure of firms’ exposure to geopolitical risks in Korea, we utilize a text-based measure of firm-level trade links. When a firm announces and discusses its purchase of inputs from Korea or sales of outputs to Korea in their annual disclosure filings, we define a firm to have a trade relationship with Korea and have exposure to Korean geopolitical risks. Similarly, we use a measure of a firm’s hedging policies based on a firm’s textual mention of the use of foreign exchange derivatives in their annual disclosure.
 Findings - We find that U.S. firms that have direct trade links to Korea gained significantly more value when the intensity of geopolitical risks drops compared to firms without such trade links to Korea. The effects are pronounced for firms purchasing inputs from or selling outputs to Korea. We find that the effectiveness of foreign exchange hedging against geopolitical risks is limited.
 Originality/value - We document the international transmission of geopolitical uncertainty through trade linkages. Export links as well as import links serve as important nexus of transmission of geopolitical risks across borders. Hedging strategies involving foreign-exchanges derivatives do not seem to insulate firms again geopolitical risks. With the recent movements of localization and reshuffling of the global value chain, our results suggest a significant impact of geopolitical risks in Korea on the construction of the global value chain.

The liquidity and trading activity effects of acquisition payment methods: Evidence from the announcements of private firms' acquisitions

We investigate how the liquidity and trading activity effects of the announcement of the acquisition of private targets vary by payment method. We find significant increases in trading activity around acquisition announcement dates irrespective of the payment method used; however, fluctuations are lower for acquisitions financed by earnouts and cash. Similarly, the stocks of acquirers using cash and earnouts are also less affected by a general loss of liquidity that accompanies announcements. We show that these effects are explained by the interpretation of cash acquisition by the market as an option used when acquirers perceive no risk of being adversely selected, and the potential of earnout as an adverse selection risk reduction tool.

Social trust and dividend payouts: Evidence from China

Social trust helps to reduce information asymmetry and agency conflicts between insiders and investors, and thus alleviates the pressure on firms to pay cash dividends. Consistent with this view, we find that Chinese firms in low-trust regions make higher dividend payouts than those in high-trust regions. The negative effect of trust is more pronounced in firms with lower information transparency and weaker corporate governance. We additionally find a lower market reaction to dividend announcements for firms in high-trust areas, and moreover that the role of social trust is more important for firms that are lacking in political connections and located in areas with weak institutions. Our results are robust to alternative measures of social trust and dividends and the use of the instrumental variable approach to alleviate endogeneity concerns. Overall, the findings highlight the important role of social trust in corporate governance and corporate dividend policy, along with its ability to substitute for formal institutions.

When Blockchain Creates Shareholder Value: Empirical Evidence from International Firm Announcements

Blockchain is a prominently discussed technology in operations and supply chain management and firms increasingly engage in blockchain initiatives. Yet, an understanding of the technology's financial value remains elusive. Based on 175 firm announcements between 2015 and 2019, we conduct an international event study to estimate the impact of blockchain initiatives on the market value of the firm. We empirically demonstrate that blockchain announcements are associated with a significant average abnormal return of 0.30% on the announcement day, and that there are indications of positive long‐term effects on shareholder value. We further demonstrate how blockchain use case, project, and firm characteristics affect the stock market reaction. Specifically, we find that the stock market reaction to blockchain announcements is less positive when blockchain is used to trace physical objects or to share sensitive data, providing empirical evidence for the risk associated with current challenges in the design of blockchain use cases. Our results also suggest that the involvement of an external information technology service provider in a blockchain project attenuates the positive stock market reaction. Interestingly, more innovative firms do not experience a stronger stock market reaction to blockchain announcements. Leveraging the international scope of our sample, we further shed light on how the firm's competitive (i.e., industry factors) and macro environment (i.e., country factors) affect the stock market reaction. Our findings indicate that the industry's R&D intensity and the country's data restriction level play a crucial role in driving the value attributed to blockchain initiatives.

Do cross border acquisitions increase shareholder's wealth The case of Indian pharmaceutical firms

Indian pharmaceutical firms have been on an acquisition spree and witnessed around 216 cross border acquisition deals worth more than $11,350 million during January 2005 to March 2019.1 The primary motive of this study is to analyse the impact of cross border acquisition (CBA) announcements on the short-run abnormal returns to Indian acquirers in the pharmaceutical sector. This study applied event study methodology and analysed 55 CBAs that happened in 24 foreign markets by 27 Indian pharmaceutical firms, from the year 2005 to 2018. Both parametric and non-parametric tests were applied to examine the robustness of abnormal returns. It was found that the announcements of foreign acquisitions by Indian pharmaceutical firms have created wealth gains for the shareholders. Further, there is strong evidence that Indian pharmaceutical firms experience significant positive abnormal returns surrounding the acquisition announcements of target firms in the developed markets and in contrast experienced insignificant negative abnormal returns when the acquired target firms were based in developing markets.