Average Abnormal Returns Research Articles

Market Reaction to Dividend Announcement during the Covid-19 Pandemic on the Indonesian Stock Exchange

This research uses Average Abnormal Return and Trading Volume Activity to test the market reaction around the dividend announcement date. Tests using these two parameters are expected to provide a more comprehensive description of market reactions. This research is quantitative research using secondary data. Even study method with a window period of 5 days before and 5 days after the dividend announcement date. Abnormal returns were calculated using a market model for 252 dividend announcement events on the Indonesia Stock Exchange in 2020. The sample was determined using purposive sampling technique and data analysis using the IBM SPSS Statistics 25.0 application. The research results show that there is a market reaction in terms of abnormal returns and differences in trading volume activity when cash dividends are announced during the Covid-19 pandemic. The announcement of an increase in the value of cash dividends and a decrease in the value of cash dividends during the pandemic caused a market reaction characterized by a significant positive average abnormal return. Meanwhile, for the announcement of the provision of dividends and the elimination of dividends, there were no significant average abnormal returns and no significant differences in trading volume activity.

Impact of the Israel–Hamas conflict on financial markets of MENA region – a study on investors’ reaction

PurposeThis study aims to examine market reactions to the Israel–Hamas conflict in neighboring countries, particularly focusing on the Middle East North Africa (MENA) region.Design/methodology/approachThe study adopts an event study methodology, employing average abnormal return (AAR) and cumulative abnormal return as measures to assess market reactions. The sample for this study comprises 1,314 companies, with October 9, 2023, identified as the event day for analysis.FindingsThe results of our study indicate that countries in close proximity to Israel and Palestine encountered detrimental effects on their capital markets, as evidenced by negative responses observed across various sectors. Our analysis also reveals that countries in the midst of conflict, particularly Israel, experienced a decrease in their stock markets across various sectors, with the exception of materials and real estate. In addition, our investigation reveals disparities in market responses according to different categories of company size.Originality/valueThis research is the first to study market reactions to Israel–Hamas in the MENA region at the company level.

Corporate spin-offs and stock performance: a comparative study of pure and composite schemes

PurposeSeveral studies have examined the relationship between spin-off announcements and stock performance. However, a comparison of the announcement effect of different schemes of spin-offs remains relatively underexplored in the literature. This study aims to find the differential impact of pure scheme and composite schemes of spin-offs on parent company stock performance. A pure scheme includes only the separation of business into independent companies, while a composite scheme includes a simultaneous merger of one of the companies with another company along with separation.Design/methodology/approachA total of 109 pure and 51 composite spin-off announcements made by Indian listed companies from 2010 to 2023 are examined using event study methodology. The cross-sectional t-test is used to measure the significance of abnormal returns. The t-test for two sample means (right-tailed) is incorporated to test the significance of variations in the stock returns of pure and composite schemes of spin-off announcements. Cross-sectional regression is also done to evaluate the impact of the type of scheme on the spin-off return.FindingsThe study found a cumulative average abnormal return of −1.06% for the pure spin-off and 8.27% for the composite spin-off over a 41-day event window. The univariate analysis revealed that the composite scheme generates a significantly higher cumulative average abnormal return than the pure scheme. Regression analysis also confirmed that the composite scheme significantly positively impacts the stock return. It can be concluded that investors favour the composite scheme, expecting that it will deliver a better strategic fit and generate synergy.Originality/valueThis paper makes a valuable contribution to the existing literature on corporate spin-offs. The study by analysing and comparing how the spin-off and merger combination differently affects the stock performance, helps the investor who wants to capitalize on the market imperfections and the managers to make complex business decisions.

Short-term market reactions to ESG ratings disclosures: An event study in the Chinese stock market

This paper evaluates how Chinese stocks respond to the onboarding of China-focused ESG scores on the Bloomberg Professional Terminal in the short term. By utilizing the event study approach, we find that the top 10 % of ESG-rated stocks react significantly positively to the onboarding event, whereas the bottom 10 % of ESG-rated stocks experience significant and negative cumulative average abnormal returns. Moreover, this effect is asymmetric in that the negative returns have a greater and more prominent magnitude than the positive returns. By comparing the cross-sectional data results before and after the rating event, we propose several channels through which these effects may function. The findings of this study also have economic and policy implications for investors and policy-makers.

Impact of Mergers & Acquisitions Announcements on Stock Prices

This study examines the impact of M&A announcements on stock prices in India, by utilizing event study methodology and a dataset of 15 announcements. It identifies dynamic trends in stock performance before and after theannouncements. The Efficient Market Hypothesis (EMH), which posits that the market incorporates all relevant information, is evident in stock price volatility. The post-COVID-19 market environment has heightened investor caution due to substantial losses. The research, covering M&A announcements from 2014 to 2023, uniquely contributes by analysing pre- and post-COVID investor sentiments. Although substantial results were produced, the analysis of Abnormal Returns (AR) and Cumulative Average Abnormal Returns (CAAR) indicates that M&A announcements did not significantly impact overall stock performance, thereby supporting the EMH. These findings provide valuable insights into market responses to M&A in India, benefiting investors, business strategists, policymakers, and other stakeholders.

Pengaruh Perubahan Kurs terhadap Return Saham Sektor Perbankan pada Masa Covid 19

The aim of this research is to determine the influence of Covid 19 which has an impact on the depreciation of the rupiah against the US dollar which then has an impact on stock prices. The case study in this research is the share price of the banking sector in the Indonesia Stock Exchange from March 1 to August 31, 2020. The population taken in this research is the banking sector listed on the Indonesian Stock Exchange. The sampling method used purposive sampling so that the number of samples obtained was 4 companies which are state-owned banking companies. Data collection is carried out by documenting data that has been published by the Indonesian Stock Exchange. Investors' reactions to information on the depreciation of the rupiah against the US dollar can be seen from the abnormal stock returns 7 days before and 7 days after information on the depreciation of the rupiah against the US dollar. The method used is the Event Study method with One Sample T-Test and Paired Test data analysis techniques.The conclusion from the results of research and data analysis from 4 state-owned banking companies listed on the Indonesia Stock Exchange during the window period is that it was found that there was no difference in Average Abnormal Return before the depreciation of the rupiah against the United States dollar (event) and after the depreciation of the rupiah against the United States dollar (event). And the paired t-test analysis shows that stock prices before the event do not affect stock prices after the event. This result shows that this market is a semi-strong market according to the Efficiency Market Hypothesis theory.

Does a Change in the ESG Ratings Influence Firms’ Market Value? Evidence from an Event Study

In recent years, the field of “ESG finance” has seen rapid growth, resulting in the emergence and expansion of ESG ratings and rating agencies. This study investigates how financial investors react to updates in ESG ratings provided by two prominent ESG rating agencies, namely MSCI and Refinitiv. The main objective is to determine whether any positive or negative changes in a company’s sustainability ratings directly impact its market value. The Event Study methodology was used for this investigation, which analyses the Cumulated Average Abnormal Returns (CAARs) of economic events to assess their influence on corporate valuations. We analysed over 840 rating updates (events) using a sample of 75 companies across various industries, all listed on major stock exchanges. Our findings indicate that shifts in sustainability ratings, as evaluated by the two rating agencies, do not significantly impact companies’ market capitalisation. Furthermore, these outcomes remain consistent over time, suggesting that financial markets are not assigning increasing significance to ESG ratings. We offer potential explanations for these findings, which are discussed in light of the existing literature on the subject.

Announcement effect of tender offer share buyback around turmoil period – evidence from India

The announcement of a buyback informs the market about the company’s decision to repurchase its own shares. This announcement highlights the company’s price valuation and the inefficiencies that exist in the market. This study examines the share buyback announcement effect during the COVID-19 period. The study considered the stocks listed in the National Stock Exchange (NSE) that offered share buyback under tender offer mode during the pre-pandemic period between April 2016 and February 2020 and the post-pandemic period between March 2020 and March 2022. 75 firms in the pre-pandemic period and 43 in the post-pandemic period that announced share buyback under the tender offer method were analyzed. The event study methodology using a market model was employed to determine the presence of abnormal returns during the event period, which consisted of –21 days and +21 days. The findings of the study revealed the existence of abnormal returns in and around the announcement date. Besides, statistically significant cumulative abnormal average returns (CAAR) were also found on the event day, i.e., on Day 0. The study found that the impact of buyback announcements on stock returns significantly differed before and after COVID-19 for 10 and 21-day periods, with no significant differences for shorter periods. These insights can help traders and fund managers make informed portfolio adjustments during turbulent market periods surrounding buyback announcements. AcknowledgementThe authors express their sincere gratitude and special thanks to Dr. Krishna T.A., Assistant Professor, Department of Professional Studies, School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), Bangalore, India, for encouraging, motivating and providing all the required support throughout this empirical investigation and to accomplish this research task.

How do the Green Energy Stocks React to Green Bond Issuances?

Achieving sustainable development is one of the main issues at the global level and both public and private sector enterprises need to make large – scale investments to fight against climate change. In this respect, green bonds gain importance to raise money for environmentally – friendly projects, especially clean energy. Proceeds from green bonds are earmarked towards financing of investments that have positive environmental impacts. This paper explores the relationship among green bond issuances and stock market reaction with special focus on renewable energy firms. Herein, through a dataset of green bond issuance announcements worldwide by 46 unique firms over the period from 2014 to 2023, we investigate how the share prices respond to such announcements using event – study methodology. From the empirical evidence of the downward stock price movements, we suggest that investors react negatively to the announcement of green bond issuances. In other words, we find significant and negative cumulative average abnormal returns (CAAR) across all the event windows except in the window of [0, 10], meaning that our findings are robust to several alternative event windows. Further, we determine that the share price response, in general, does not differ depending on the use of green bond proceeds and the years.

How do investors value the publication of tax information? Evidence from the European public country‐by‐country reporting

AbstractWe examine the costs associated with public disclosure, as opposed to confidential reporting, of tax country‐by‐country reporting (CbCR) information. Our study addresses a critical knowledge gap, considering the growing adoption of public tax transparency measures. We aim to illuminate this matter by examining the expected costs for firms of making previously confidential CbCR information publicly available. The fact that the information was previously confidentially reported to the tax authorities allows us to assess the cost of publication in isolation. Employing an event study methodology, we provide early evidence on the capital market reaction to this new requirement on a sample of European firms falling within its scope. We document a significantly negative cumulative average abnormal return of EUR 47 billion to 64 billion for up to 3 days following the announcement. Additional cross‐sectional results suggest that concerns about the reputational costs arising from public scrutiny and the proprietary costs from disclosing sensitive business information outweigh the potential benefits of an extended information environment from an investor perspective. Our findings highlight that the public disclosure of tax information imposes significant—and likely unintended—costs from a firm perspective. This aspect should be carefully considered when developing tax transparency measures.

The Impact of Spin-Off Announcement Toward Stock Performance: Evidence from Global Telecommunication Companies

This study aims to give telecommunication companies insight into how markets react toward spin-off announcements as one of the considerations for whether to spin-off or continue to be a vertically integrated telecommunication company. Analysis method is based on a prior study by measuring the announcement effect using event study methodology. The novelty of this study is that the scope is global, and it focuses on spin-off announcements on telecommunication companies. This study shows empirical evidence of the spin-off announcement effect based on a sample of 50 spin-off events from telecommunication companies based in 20 countries spreading over six continents. It shows mixed results between negative and positive Average Abnormal Returns (AAR) around the spin-off events, with the majority of the Average Abnormal Returns (AAR) being negative. It also shows that the Cumulative Average Abnormal Return (CAAR) in the 20 trading days post-event window after spin-off announcement is negative. Recent spin-offs do not exhibit the same significant Cumulative Average Abnormal Return (CAAR) behavior as the past one. The result of this study is also consistent with the semi strong efficient market hypothesis.

ESG News Sentiment and Stock Price Reactions: A Comprehensive Investigation via BERT

In this paper, we examine in a systematic manner how investors react to the sentiment of instant ESG news. Instead of acquiring proprietary ESG news or events datasets directly from specific ESG data providers, we extract fresh ESG news directly from a plethora of raw news articles. We showcase how the latest development in NLP (i.e. the BERT model) can be applied to build a comprehensive and fresh ESG news dataset, and how company ESG news sentiment can be efficiently recognized by a machine. Overall, we find that the market reacts to ESG news based on news sentiment. On the event day, positive ESG news has an average abnormal return of 0.31% while negative ESG news leads to a mean value of -0.75\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$-0.75$$\\end{document}%. More interestingly, we find that the impact of ESG news may depend on the company’s historical ESG record. The negative impact of negative ESG news has less severe consequences for companies with an overall better ESG record, while the positive impact of positive ESG news may be more pronounced for companies with a worse ESG record.

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.

Capital Market Reaction to the Strengthening of the Rupiah Exchange Rate against the US Dollar Exchange Rate

The purpose of this study is to analyze the response of Indonesian capital markets to differences in average abnormal returns and average trading volume activity before and after the strengthening of the IDR/USD exchange rate. This study is a quantitative study using the event study method. The sample used consists of the stocks included in the LQ45 index. the most active stocks with a large daily trading volume. Hypothesis testing and paired t-test. The results of the hypothesis test show that: there is no significant difference in the average abnormal returns before and after the strengthening of the rupiah against the US dollar because are sig. (2-tailed) value of 0.417 > 0.05; there is no significant difference in the average trading volume activity before and after the strengthening of the rupiah against the US dollar because sig. (2-tailed) value of 0.080 >0.05. Keyword: Market Reaction; Event Study; Abnormal Return; Trading Volume Activity; Exchange Rate

Market Reaction to Environmental Disasters

Despite the fact that environmental issues are coming to the fore today, the market reaction to environmental disasters is not strong enough. This article examines the impact of a number of major industrial disasters on the companies’ stock performance, depending on financial health of the companies involved in an accident. We assessed the impact of financial indicators such as: financial leverage, profitability, balance value per share, capital expenditures, market capitalization and revenue on the amplitude of cumulative average abnormal returns (CAAR). The sample consists of 32 companies fromthe oil, chemical, mining and energy industries of developed countries involved in 80 major accidents between 2000 and 2020. The majority of disasters occurred in North America (47.5%) and in Europe (26.3%). Using the event study method to assess shareholders’ reaction and regression analysis, we proved that the financial leverage, profitability and book value per share has a positive impact on the amplitude of CAAR, while the ratio of capital expenditures to revenue has a negative impact on cumulative returns. The results showed that market capitalization and revenue growth do not affect the dynamics of stock prices after industrial disasters. In general, our study shows that the impact of all financial indicators on CAARis small (<1%). That is, despite the mandatory publication of climate risk reports, investors did not actively sell shares of companies guilty of industrial disasters. The results of the study are useful in several areas. On the one hand, by forming a diversified investment portfolio, investors taking into account the type of companies that are more sensitive to disasters. On the other hand, knowing such a market reaction, the state should provide financial players with strict rules and penalties for companies responsible for accidents.

Supply chain driven herding behavior during COVID-19: evidence of interdependence from India

PurposeThis study aims to test the market anomaly of herding behavior driven by the response to supply chain disruptions in extreme market conditions such as those observed during COVID-19. The authors empirically test the response of the capital market participants for B2B firms, resulting in herding behavior.Design/methodology/approachUsing the event study approach based on the market model, the authors test the impact of supply chain disruptions and resultant herding behavior across six sectors and among different B2B firms. The authors used cumulative average abnormal returns (CAAR) and cross-sectional absolute deviation (CSAD) to examine the significance of herding behavior across sectors.FindingsThe event study results show a significant effect of COVID-19 due to supply chain disruptions across specific sectors. Herding was detected across the automotive and pharmaceutical sectors. The authors also provide evidence of sector-specific disruption impact and herding behavior based on the black swan event and social learning theory.Originality/valueThe authors examine the impact of COVID-19 on herding in the stock market of an emerging economy due to extreme market conditions. This is one of the first studies analyzing lockdown-driven supply chain disruptions and subsequent sector-specific herding behavior. Investors and regulators should take sector-specific responses that are sophisticated during extreme market conditions, such as a pandemic, and update their responses as the situation unfolds.

Changing Share Price After Announcement Of The Merger And Acquisitions By Acquiring Firms Is Significant Or Insignificant

This Paper scrutinizes a model of merger and acquisition declaration of different companies in United Kingdom (Home Takeover) region and also other countries (Cross-Border Takeover) during the time period of 01 January 2019 to 30 June 2022 and finally displays the consequence of 50 Home takeover companies (UK companies acquired UK companies) and 50 cross- border companies (UK companies take over foreign companies) to recognize the post effect of merger andacquisition declaration on the stock prices of the target and acquired firms. Event Study Methodology has been used for this study, like, Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR) are used to analyze the different event windows about the stock prices of the target and acquired firms. A paired sample investigation has also been directed by associating the Pre- and Post- announcement returns on stock prices for the event window of ± 5 days of the target and acquired firms. In the event windows, the stock price of the target firm's all is not positive CAAR but pointedly dissimilar from zero. In the home takeover figures, all the AAR and CAAR are not significant and some negative returns after the post-declaration prove about the primary investor's overreaction and efficient market hypothesis (EMH). There is no presence of positive implication in the cross-border pre-event return but only a positive implication returns in the home takeover pre-event return that is also significant at the 10% level.

Unanticipated Political Events and Their Effect on the Nepalese Insurance Sector and Stock Market

This study analyzes the relationship between unanticipated political events and their profound impact on both the insurance sector and the Nepalese stock market (NEPSE). Utilizing comprehensive analysis, the research spans 200 days before to 10 days after the political event’s announcement. Employing Levene’s test, dummy variable regression, and estimated average abnormal return, the study reveals significant effects of political events on the insurance index and NEPSE indices. The pre-event period is particularly significant, indicating potential information leakage. Window Frame 1 (-10, -1) stands out as the most profoundly impacted period, with Window Frame 2 (0, +10) witnessing moderate impact during the announcement and Window Frame 3 (+2, +10) experiencing a comparatively lesser post-event effect. Nepali Congress Wins Election (Event 1) and End of Nepal Blockade (Event 3) were identified as the most significant events for the Insurance and NEPSE indexes. Dummy variable regression emphasizes the significance (P < 0.05) of multiple window frames (mostly 1, 5, & 6) in the NEPSE index, suggesting early information leakage adjustments. The insurance sector also demonstrates a highly significant (P < 0.05) impact of unanticipated political events across various data points, with the post-event period (Windows 2 and 3) as the sole exception. Cumulative abnormal return analysis demonstrates that the Nepalese stock market is moderately inefficient, as it reinforces the market’s attempt to incorporate political influences within three to five days of the announcement date. These findings bear implications for investors, policymakers, and regulatory authorities seeking to understand the dynamics of the Nepalese stock market, enabling informed decision-making during times of political transitions and uncertainty.

The power of purpose: how material sustainability and stakeholder orientation drive financial success

PurposeConsidering the standards developed by the Sustainability Accounting Standards Board (SASB), this study aims to examine whether the link between material sustainability and financial performance depends on the extent to which the company is oriented toward stakeholders.Design/methodology/approachTo test the predictions, 13,942 firm-year observations from 43 different countries are used, covering the period from 2010 to 2019. Using a hand-mapping approach to match the indicators suggested by the SASB with those of the ASSET4, the authors realize that there are 170 material sustainability indicators among 466 indicators of the ASSET4. The authors use three different methods to verify if the materiality matters, including the alphas obtained from the Fama and French factor models, comparing the average abnormal returns of the portfolios and the bootstrapped Cramer technique.FindingsThe findings show that companies investing in material sustainability activities perform better than those investing in immaterial activities. Also, consistent with the theoretical foundations, the authors find that the effect of investing in material sustainability activities is more pronounced in stakeholder-oriented countries than that in shareholder-oriented countries. The results are robust to a battery of sensitivity tests.Research limitations/implicationsOwing to COVID-19 in late 2019, data from 2020 to 2022 have not been used to obtain reliable results.Practical implicationsThe results obtained in the current research provide valuable guidance for investors to make investments considering the degree of materiality of sustainability activities in different industries. It also helps managers to increase the company’s financial performance, make efficient decisions related to investment in sustainability activities and find investment strategies on the material sustainability issues in their industries.Social implicationsThis study provides a clearer understanding of investment in sustainability activities in different industries by separating material and immaterial sustainability activities in stakeholder and shareholder-oriented countries, and the results obtained can change the perspective of investors and company managers regarding investing in such activities in different countries. Investing in more materiality sustainability activities than the immateriality dimension can be new opportunities for companies to achieve predetermined goals, help retain and attract business partners or be a source of innovation for new product lines or services. Internal morale and employee engagement may increase while increasing productivity and firm performance. This discussion opens the way for future research.Originality/valueThis study provides insight into the effect of investing in material and immaterial sustainability activities in different industries on the company’s performance in shareholder and stakeholder-oriented countries.

Valuation Effects of Magnitude and Frequency of Share Repurchases: Indian Evidence

This study examines the valuation effects of the magnitude and frequency of share repurchases for 181 Bombay Stock Exchange–listed stocks from 2000 to 2021. We investigate the valuation effect of share repurchases by calculating the sample companies’ average abnormal returns (AARs) and average cumulative abnormal returns (CARs) using the market model of event-study methodology. The findings show that the magnitude of share repurchases impacts the stock prices of the sample companies, regardless of the size of the repurchases concerning the total number of ordinary shares outstanding. Furthermore, when compared to single-time repurchasing companies, frequent repurchasing companies experience abnormal returns. This study contributes to the scant literature on the frequency and magnitude of share repurchases across the world.