Event Study Approach Research Articles

Market Reaction to EU CRD IV Regulation in the Banking Industry

This paper aims to provide evidence on the market reaction to the EU CRD IV regulation announcements in the EU banking industry and examine their determinants at the bank and country levels. EU CRD IV came up in the aftermath of the 2008 financial crisis, and it is recognized as the most notable regulatory initiative at the European level to increase overall bank transparency. Employing an event study approach around 15 announcements between 2011 and 2013, we document a negative market reaction on a sample of 145 listed European banks, indicating that transparency increases are borne by shareholders, with detrimental impacts on bank stock prices. We show that investors negatively perceive the introduction of this regulation, with more pronounced reactions for poorly transparent, large, and complex banks located in countries with high exposure to sovereign indebtedness. Our findings contribute to the debate on bank transparency matters.

Price and Volume Effects Around Credit Rating Change Announcements: Evidence from India

This article addresses the issue of the informational content of credit ratings by examining the effect of credit rating change announcements on the stock price and trading volume of Indian companies. Using the event study approach, abnormal return and abnormal volume are estimated around rating change announcements (upgrades and downgrades) during the period 1 April 2010 to 31 March 2021. The findings demonstrate a significant market reaction to rating change announcements. Negative (positive) abnormal returns are found around downgrade (upgrade) announcements, with downgrades prompting a more pronounced reaction than upgrades. The market is able to anticipate the rating change (pre-event reaction) in case of both upgrades and downgrades. Further, significant abnormal trading volume is observed around rating changes, with downgrade announcements again eliciting a stronger reaction, thereby shedding light on the information content of credit ratings and investor behaviour in the context of emerging markets. The magnitude of market reaction to changes in credit rating is also dependent on the rating agency’s size and reputation. The study has implications for portfolio management, investment strategies and stakeholder engagement and, therefore, of interest to investors, debt issuer firms and policymakers.

Regulation by enforcement: the impact of Securities and Exchange Commission enforcement actions on crypto valuation

Purpose This paper aims to examine the impact of enforcement actions by the US Securities and Exchange Commission (SEC) on the valuation of major crypto assets. Design/methodology/approach Given the recent increase in regulatory efforts to combat fraudulent activity within the market, the paper concentrates on the period from 2019 to 2023 and uses the event study approach. Findings The analysis reveals a negative and economically significant effect of SEC actions on crypto valuations, ranging from −0.7% to −1.4% over a three-day window surrounding the announcement of enforcement actions for the entire sample. Particularly, a pronounced negative reaction is observed from crypto investors to SEC enforcement actions in 2022 and those where individuals are charged. Originality/value The findings align with existing literature, even though the study uses more conservative methodological approaches and data selection criteria. Specifically, the author uses a market event study model, account for potential confounding events, and use initial news reports about investigations rather than official SEC communications as event dates.

How does undervaluation in medical savings accounts (MSAs) affect healthcare utilization? Evidence from administrative data in China

This study examines how the undervaluation of funds in Medical Savings Accounts (MSAs) influences healthcare utilization in China. Given that MSA funds are restricted to healthcare expenses, individuals may undervalue these funds relative to cash, leading to potential overuse of health care. Through an event study approach using administrative data, we find significant reductions in healthcare utilization after MSA balances are depleted—outpatient care expenses drop by 49 percent, and drugstore purchases decrease by 41 percent. These effects persist across socioeconomic groups, indicating that liquidity constraints are not a major factor. Our back-of-the-envelope calculations suggest that insured individuals undervalue MSA funds by 40–70 %. This research sheds light on the behavioral impacts of MSAs and the broader implications of perceived price distortions in health insurance.

Government environmental attention and enterprise greenwashing behavior: evidence from China

PurposeThis study investigates whether Chinese local governments’ environmental attention can mitigate corporate “greenwashing”, focusing on the extent of environmental content in annual government work reports as indicative of government environmental attention. This study aims to determine whether enterprises respond to changes in local governmental attention by improving the quality of their environmental information disclosures.Design/methodology/approachData from China’s A-share listed companies spanning 2013–2021 were sourced from the CSMAR database and company annual reports. Environmental attention data were manually gathered from local government work reports published on official local government websites by using text analysis methods. These datasets were analyzed empirically to assess the impact of local governments’ environmental attention on corporate greenwashing behavior.FindingsResults show that increased governmental environmental attention significantly reduces corporate greenwashing behavior by alleviating corporate financing constraints, enhancing independent engagement in environmental initiatives and bolstering stakeholder oversight. Moreover, heterogeneity analysis indicates that the influence of government environmental concerns is pronounced in non-state-owned enterprises, firms with subpar audit quality and those exhibiting myopic management tendencies.Originality/valueThis study enriches the existing literature on the government–business nexus. It also introduces methodological innovations by employing a lexical analysis of environmental themes in local government work reports instead of using typical event study approaches. Furthermore, it uses a mediating effect model to identify the mechanisms through which government environmental attention influences corporate greenwashing, namely, government subsidies, corporate environmental initiatives and external stakeholder oversight.

A Markov regime-switching event response model: beef price spread response to processing capacity shocks

AbstractThis research introduces a new method for event studies in time-series analysis named the Markov regime-switching event response model (MS-ERM). The MS-ERM is a comprehensive approach that integrates two different event study approaches: 1) measuring the impact of an event through structural shift and 2) measuring the impact via additional distributional components. As an empirical application, the study measures the impact of beef-packing plant closures on the weekly live-to-cutout beef price spread. The results indicate that the MS-ERM is a promising tool for event studies, particularly when an empirical dataset has both groups of events that cause and do not cause structural changes.

Beyond the Event Window: Earnings Horizon and the Informativeness of Earnings Announcements

ABSTRACT The impact of earnings announcements (EAs) on investor uncertainty depends not only on how much new information they contain but also on how long it would take comparable information to arrive in the future through alternative sources, which I term “earnings horizon.” Using a structural model of periodic EAs, I show that earnings horizon is not captured by standard empirical measures of earnings informativeness or timeliness based on the event-study approach. However, earnings horizon can be estimated using patterns in return volatility over firms’ reporting cycles, which indicate that EAs have a short horizon and thus reduce investor uncertainty by one-third the amount suggested by event studies. Moreover, these patterns indicate that it takes investors considerably longer than the three- to five-day windows commonly applied in event studies to fully process EAs and that more frequent financial reporting may significantly enhance EAs’ informativeness. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: C58; D82; D84; G10; G12; G14; G30.

Financial risk contagion across markets in China under the impact of the COVID-19 pandemic

Using an enhanced event study approach, we effectively take into account the impact of both the statistical and latent information associated with COVID-19 on financial markets. We also introduce CO2 emission data to investigate the indirect impact of the COVID-19. The results show that the money market, real estate market and bond market are the centers of risk contagion during COVID-19. The real estate and money markets are the most affected by COVID-19. While the real estate market was affected significantly by both statistical and latent information, the money market was mainly affected by latent information.

MARKET REACTIONS TO BOYCOTT ANNOUNCEMENTS: ANALYZING THE IMPACT ON TARGETED COMPANIES IN INDONESIA

This research aims to examine the changes in abnormal returns (AR) and trading volume activity (TVA) before and after the announcement of MUI Fatwa Number 83 of 2023, which targets companies for boycott due to their alleged affiliation with Israel. This study employed an event study approach, using a 5-day event window, 10-day event window, 20-day event window and 30-day event window before and after the Fatwa's announcement to measure abnormal returns and trading volume activity. The analysis began by examining the normality of the data to determine whether it was normally distributed. For normally distributed data, a Paired Sample T-test was used, while the Wilcoxon Signed Rank test was applied to non-normally distributed data. The analysis reveals a significant difference in AR during the initial 5-day window, indicating a strong short-term market reaction driven by investor sentiment and uncertainty. However, for longer windows (10, 20, and 30 days), no significant differences in AR were found, suggesting that the market stabilized as new information was absorbed, consistent with the Efficient Market Hypothesis (EMH) by Eugene Fama (1970). Conversely, TVA showed significant increases across all event windows, indicating sustained investor interest and heightened trading activity. This suggests that while the impact on stock prices was short-lived, the boycott had a lasting influence on trading volume, reflecting continued portfolio adjustments.

Is country leaders’ education relevant for policy making? The case of the Covid-19 pandemic

AbstractThis paper examines the impact of a country leader’s education on policy responses and policy outcomes during the onset of the Covid-19 pandemic. Relying on a quasi-experimental event-study approach, I find that political leaders with a graduate education responded more stringently to the first nationally registered infection than political leaders with lower educational attainment. Subsequently, political leaders with a graduate education reported fewer Covid-19 infections and Covid-19 related deaths at the onset of the pandemic. The results suggest that the education of political leaders can explain policy differences, particularly in countries with low electoral accountability. The low level of accountability allowed political leaders with a graduate education to implement stringent, evidence-based policies to contain the pandemic without fear of electoral punishment.

Do metaverse implementation announcements enhance firms’ stock market value in China? A signaling theory perspective

PurposeThe metaverse has garnered increasing attention from researchers and practitioners, yet numerous firms remain hesitant to invest in it due to ongoing debates about its potential financial benefits. Therefore, it is crucial to analyze how the implementation of metaverse initiatives affects firms’ stock market value – an area that remains underexplored in the existing literature. Additionally, there is a significant lack of research on the contingency factors that shape the stock market reaction, leaving a noticeable gap in managerial guidance on the timing and benefits of investments in the metaverse. To narrow these gaps, we examine whether and when the implementation of metaverse initiatives enhances firms’ stock market value.Design/methodology/approachBased on 73 metaverse implementation announcements disclosed by Chinese listed firms during January 2021–August 2023, we employ an event study approach to test the hypotheses.FindingsWe find that metaverse implementation announcements elicit a positive stock market reaction. Moreover, the stock market reaction is stronger for technology-focused announcements and smaller firms, or when public attention to the metaverse is higher. Nevertheless, firms’ growth prospects do not significantly alter the stock market reaction.Originality/valueThis study extends the nascent literature on the metaverse by applying signaling theory to offer novel insights into the signaling effect of metaverse implementation announcements on stock market value and the boundary conditions under which the effectiveness of the signal varies. Besides, it provides managers with important implications regarding how to tailor the investment and information disclosure strategies of the metaverse to more effectively enhance firms’ stock market value.

Effects of draft Climate-related Financial Risks Disclosure Framework on stock returns

We use an event study and cross-sectional approach to examine the immediate effects of the Reserve Bank of India's Draft Climate-related Financial Risks Disclosure Framework on the stock market. The findings indicate investor apprehension through initial negative stock market response (a significant -0.62 % abnormal return on the event day) to the disclosure framework. The most affected sectors are the Automobile, Healthcare & Pharma, Information Technology, Media, Oil & Gas, and PSU Banks. The Governance variable adversely influenced post-event returns. Findings also reveal investor confidence in larger, financially robust firms.

Motherhood and the allocation of talent

ABSTRACT In this paper we show that motherhood triggers changes in the allocation of talent in the labour market beyond the well-known effects on gender gaps in employment and earnings. Based on an event study approach around the birth of the first child and retrospective panel data for 28 European countries and Israel, we assess the labour market responses to motherhood across ‘talent’ groups–i.e. groups with different educational attainment, Math performance at age 10, and personality traits associated to entrepreneurial ability. We show that even the most talented women–both in absolute terms and relative to their husbands–leave the labour market or uptake part-time jobs after the birth of the first child. We also find that motherhood induces a negative selection of female talents into self-employment. Overall, our results suggest relevant changes in the allocation of talent associated to gender differences in non-market responsibilities that can have sizable impacts on aggregate market productivity.

Comparative Analysis Of Stock Prices, Stock Returns, And Stock Liquidity Before And After The Stock Split In Banking Companies Listed On The Idx In 2021-2023

This research seeks to compare stock prices, abnormal returns (as a proxy for stock returns), and trading volume activity (TVA) (as a proxy for liquidity levels) before and after a stock split. Utilizing an event study approach, observations were conducted on the average stock prices, abnormal returns, and TVA for five days before and five days after the stock split. Secondary data were employed with purposive sampling techniques. The data utilized in this study comprise the stock split announcement dates, which are treated as the event date (t+0), the daily closing stock prices of companies undergoing stock splits within the observation period, the daily traded share volume, the total shares outstanding, and the daily Composite Stock Price Index (IHSG). The sample consisted of three banking companies listed on the IDX that carried out stock splits between 2021 and 2023. The results reveal no significant differences in stock prices, abnormal returns, and TVA before and after the stock split.

Turn off the faucet: Can individual meters reduce water consumption?

When consumption of water and other utilities is measured collectively for many households and the payment of such services is equally shared among members of the group, individuals may use more than what is socially optimal. In this paper, we evaluate how the installation of individual meters affects water consumption. Using administrative data from the public water utility company in Quito, Ecuador, and an event study approach, it is estimated that water consumption decreases by about 20% as a result of the introduction of individual metering. The effect is large and economically significant: in order to obtain the same effect using the price mechanism in Quito, prices would have to increase by at least 66%. Individual water metering could be a useful tool to curve down consumption in both developing and developed countries.

Children and the Gender Earnings Gap: Evidence for Australia*

We estimate the impact of children on the gender earnings gap in Australia using an event study approach. We show that the arrival of children has a large and persistent impact on the gender earnings gap, reducing female annual earnings by 53 per cent, on average, in the first 5 years of parenthood. We attribute the gap in earnings to lower participation rates and reduced working hours among mothers, including a shift to part‐time work. Although the decline in earnings for women is similar regardless of their breadwinner status prior to children, women with greater access to workplace flexibility are more likely to remain employed after having children.

Adaptability, diversification, and energy shocks: A firm level productivity analysis

Energy economists have long argued that energy systems need to be adaptable in the face of shocks. In the early twentieth century, Denmark embodied the opposite, with its industry almost entirely dependent on imports of coal from the UK. Towards the end of the First World War, however, and well into the 1920s, coal imports became expensive and more difficult to obtain. Local diversification was possible, however, through peat. We exploit detailed microlevel data from butter factories, covering the period 1900–28. Employing an event study approach, we find significant productivity advantages for firms closer to available peat fields in the wake of the coal shortage, and that these gains persisted even when peat was no longer used. Our results thus suggest that public policy might aim to support adaptability for firms less able to transition to more sustainable energy if that is the price of longer-term efficiency and survival.

Families of austerity: benefit cutbacks and family stress in the UK

Abstract Benefit cutbacks have been prominent after the Great Recession. The Family Economic Stress Model (FESM) theorizes how financial losses such as those spurred by cutbacks might adversely affect parental and child well-being. Yet, few links with policy have been established. We extend current knowledge by comprehensively assessing how benefits cutbacks may affect parents and their adolescent children. We rely on the first ten waves of the UK Household Longitudinal Study (2009–2019) and an event-study approach to examine the aftermath of an exceptional raft of benefit cutbacks. We find that mothers with lower incomes and single mothers accumulated losses equal to 20–30 percent of their household benefit income. Mothers could not fully compensate for such benefit income losses via their extra earnings, despite increased workforce participation. Financial worries, some forms of material hardship, and mental health worsened among mothers with lower incomes and single mothers exposed to cutbacks. Adolescent socio-emotional difficulties also increased in the period. We find little evidence, though, that cutbacks disrupted parenting. Parents thus display more agency than that accorded by the FESM. Nonetheless, findings point to deepening socioeconomic divides in financial and mental well-being, questioning the rationale for cutbacks.

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.

Religious Investor Sentiment, Shariah Compliance Impact, and Theological Risk: Evidence from Bursa Malaysia

This study examines the financial implications of religious restrictions by analyzing how changes in the Shariah compliance status of stocks affect their price and trading volume. Employing the market model in an event study approach and using data from Malaysian firms between 2000 and 2016, the study focuses on 30 announcements from the Security Commission Malaysia’s List of Shariah Compliant Securities (LSCS), resulting in 370 additions and 284 deletions from the compliance list. The findings indicate that the inclusion of stocks in the compliance list generates longterm demand driven by Islamic institutional and Muslim retail investors, leading to a permanent increase in abnormal returns and trading volume. Conversely, the removal of stocks from the compliance list induces short-term negative abnormal returns and increased trading volume, reflecting selling pressure. These results contribute to understanding the financial consequences of religious restrictions, highlighting the influence of Shariah compliance on stock market performance and investor behaviour.