Earn Negative Returns Research Articles

Did the Recognition of Operating Leases Cause a Decline in Equity Valuations?

We examine whether investors react to a significant change in balance sheets, absent a significant change in underlying economics. Beginning in 2019, ASC 842 requires the recognition of operating leases, which were previously only disclosed in the footnotes to the financial statements. This change in accounting standard results in firms with significant operating leases recognizing a considerable increase in debt. We find that firms with significant operating leases, on average, earn negative returns around the initial recognition of their operating leases. For example, firms in the top decile of operating lease intensity experience a mean abnormal return of -3.10% around their first quarter 2019 earnings announcements. We do not find that concurrent trade tensions between the United States and China explain the valuation decline. Our results provide timely, new evidence consistent with equity market prices reflecting an inadequate level of fundamental analysis.

Trading patterns in the TAIEX futures markets: Information- or behavioral-based trades?

This study investigates the relation between trading patterns and performance in the TAIEX futures market. The research shows that individual investors are poor market timers and earn negative returns; institutional investors have success in timing the market and their trades make positive returns. Individual trading activity is more aggressive in terms of a higher proportion of the market order and a shorter holding period for a round-trip trade. Individual trading is also more motivated by behavioral bias, like overconfidence and disposition effect. Institutional investors exhibit significant overconfidence-based trading when opening extremely small or relatively large positions.

Do target firms always gain? The determinants of target firms loss in US takeovers

Studies that examine the profitability of mergers and acquisitions document that a considerable proportion (15-20%) of target firms earn negative returns. This study examines why the share price of the target firm reacts negatively to the announcement of some merger deals, while it reacts positively to others. We find that target firms that earn negative returns are less efficient, less profitable, receive a lower premium, are more likely to be paid with stocks, and attract less efficient acquirers than target firms that earn positive returns. The logistic regressions indicate that high relative size, low premium, higher target leverage, equity exchange offers, and mixed payment deals are associated with a higher likelihood of loss for the target firm. Fewer anti-takeover provisions for target firms are associated with a higher probability of loss, because such target firms, if necessary, are more likely to be disciplined by the market and be paid a low premium. Meanwhile, a high G-Index on the part of the acquirer is associated with negative target returns in share exchange offers if the premiums paid do not compensate for the acquirer excess risk.

Rediscovering Risk: Country Banks as Venture Capital Firms in the First Industrial Revolution

Some English country banks were more like modem venture capital firms than modem banks in terms of legal and managerial structure, size and source of investment funding, size and nature of investments, and riskiness. This is exemplified by Praed & Co. of Truro, which was heavily engaged in financing the adoption of a risky new technology-Watt steam engines-by Cornish copper mines in the period 1775-1800. If some banks were proto-venture capital firms, rather than proto-banks, then their illiquid and relatively undiversified investment strategies are more reasonable and their bankruptcies more understandable: high-risk investments sometimes earn negative returns. The important role of banks in financing industrialization in Britain,

Should Pension Funds have Independent Fiduciaries?

Recent concerns about the conflicts of interest faced by firm's executives who serve as fiduciaries in their employees' pension fund have prompted calls for independent fiduciaries. This paper provides formal evidence that supports the case for fiduciary independence. We find that, contrary to the well-established result that insiders as a group earn positive abnormal profits, pension funds that attain insider status earn substantial negative market-adjusted returns on their trades. The case for fiduciary independence is further strengthened by the fact that the negative returns are confined to separate accounts (pension funds that are created exclusively for a single company's employees) with potentially greater conflicts of interest, while commingled funds (funds that mingle the pension investments of multiple companies) do not earn negative returns.

Gaining a Competitive Edge Through Acquisitions: Evidence from the Telecom Industry

In this paper, we study the announcement effects of all acquisitions in the recent telecom wave on both the acquirors and their non-merging competitors. We extend the analysis of traditional studies that measure the takeover performance along two dimensions (by studying the returns to acquirors over multiple mergers and by including the non-merging competitors) in order to differentiate between the potential theories for negative returns earned by acquirors. Our results are consistent with the Competitive Advantage Hypothesis that posits that acquisitions are a means of corporate restructuring in a changing environment, awarding the acquiror a competitive edge and thereby making these acquisitions costly for their non-merging competitors (rivals). We find that the rivals of the acquirors experience negative returns, especially around the announcement of non-horizontal acquisitions of -0.38\% on average. Further, we find that closer rivals of the acquirors experience higher negative returns: The competitors that are of similar size as the acquiror earn negative returns of -0.50\% and the ones that provide primarily the same service as the acquiror lose -0.65\% on average. Multivariate test results confirm most of the findings of the univariate tests. In addition, they show that for every -1\% return suffered by the acquiror at the announcement of its acquisition, its rivals suffer -0.04\% on average.

Market efficiency in Scandinavian racetrack betting

This study analyzes Scandinavian racetrack betting markets. We discuss market efficiency and investor behavior in light of the fact that investors earn negative returns on average. Show bets on favorites in Norway yield a small positive return, while all the other betting markets are weak form efficient. We establish the favorite-longshot bias for quinella and exactor bettors, but not for win bettors. Our results can be explained by small pools and high track takes. Investors wagering at the racetrack have a different risk attitude than investors wagering off the track. We explain how our results should influence the design of betting products, especially with respect to the fraction of the pool returned to winners.

An economic analysis of leasebacks

Leaseback decisions by firms involve the simultaneous sale of an asset and a lease agreement with the new owner. Examination of 64 leaseback decisions made by firms during 1979–1987 reveals a significant negative announcement effect. We present a theoretical framework in which all firms prefer to leaseback when there is symmetric information. When there is asymmetry of information between the manager and the market, however, firms with favorable prospects prefer to own the asset. Firms with poor prospects choose to leaseback and capture the associated depreciation tax shield through the sale. Our empirical results indicate that, besides the significant negative announcement effect, firms proposing a leaseback earn negative returns in the three months prior to the announcement. We monitor the performance of these firms for five years after the leaseback decision and compare it to five years before the announcement. There is a significant drop in operating performance as indicated by several key variables such as operating earnings before depreciation and pretax earnings. This is consistent with the hypothesis that firms choose to leaseback when faced with unfavorable future prospects.