Share Prices Of Firms Research Articles

Capital Structure and Stock Prices: Empirical Evidence from Listed Beverage, Food and Tobacco Companies in Sri Lanka

The share price of a firm is affected by various factors. Determination of share price is not an easy task. The share price movement is based on the firm’s fundamentals, Market efficiency, Macroeconomic Indicators and Perception of the Investors. Several studies have proven that share price of firms are explained by its capital structure. This study tests the relationship between capital structure and share prices of the listed Food and Beverage Tobacco companies in CSE for the period from 2011/2012 to 2016/2017. It analyzes the relationship between share price and capital structure by employing panel least square method approach. According to the results of the study there is a positive relationship between debt to equity and share prices .The results were statistically significant at 1% level of significance. The results indicate adding debt to overall capital positively effects on the share prices. These findings have important implications for managers or people who take decisions regarding capital structure. The changes in capital structure may have a significant impact on stock prices of the companies.

Rumor rationales: The impact of message justification on article credibility

We perform content analysis on a unique sample of 2074 first-instance published takeover rumors to study how the rationale underlying a publication relates to its credibility and its association with firm returns and rumor accuracy. While most takeover rumors are inaccurate, we find that distinguishing between various justifications of potential takeover activity as provided within the published article serves to predict takeover announcements, subsequent firm abnormal returns, and – to a lesser extent – premiums. In addition, we note a clear distinction in results based upon the informative versus speculative nature of the rumor. We interpret this evidence as supportive of our hypothesis that the underlying rationale justifying the release of public information affects firm share prices and aids in predictability.

Avantium launches successful IPO

This paper examines the link between oil (gas) firm share price and crude oil (natural gas) return, volatility and drilling activity. Particular emphasis is placed on testing for real option effects through analysis of the sensitivity of oil (gas) firm share price to oil (gas) price volatility. Using the level of active exploration drilling as a proxy for exercised real options, we find some evidence of a real option effect linked to drilling in gas firms, though there is little evidence of this for oil firms. There is evidence of a strong positive oil (gas) return effect on oil (gas) firm value. Finally, there is also some evidence of wealth destruction associated with exploration drilling compared with development drilling.

Myopic market pricing and managerial myopia

AbstractThis paper develops a firm‐level measure of myopic market pricing, which captures the extent to which the market overvalues short‐term expected abnormal earnings relative to longer‐term ones. The empirical analysis shows that myopically priced firms manage earnings more actively and invest less in R&D. The impact of myopic market pricing is concentrated in firms where managers cater more to market pricing, that is, in firms with greater short‐term investor ownership, with CEO compensation that is more sensitive to the firm share price, and with higher equity dependence. Additional tests show that these findings are robust to the consideration of market (under)overpricing. The results suggest that when managers cater to market pricing, market myopia encourages managerial myopia.

Real options and the value of oil and gas firms: An empirical analysis

This paper examines the link between oil (gas) firm share price and crude oil (natural gas) return, volatility and drilling activity. Particular emphasis is placed on testing for real option effects through analysis of the sensitivity of oil (gas) firm share price to oil (gas) price volatility. Using the level of active exploration drilling as a proxy for exercised real options, we find some evidence of a real option effect linked to drilling in gas firms, though there is little evidence of this for oil firms. There is evidence of a strong positive oil (gas) return effect on oil (gas) firm value. Finally, there is also some evidence of wealth destruction associated with exploration drilling compared with development drilling.

Stock price reaction to cash dividend announcements in Vietnam

This study attempts to investigate the stock price reaction to divi-dend announcements using data of Vietnamese listed firms on Hochiminh Stock Exchange (HOSE). Standard event study meth-odology has been employed on a sample of 198 cash dividend an-nouncements made in 2011. The results show that stock prices react significantly and positively to the announcements of cash dividends, including both dividend increasing and dividend decreasing events. It is also plausible that cumulative abnormal returns exhibit an in-creasing trend before announcement yet a decreasing trend after announcement dates. More specifically, we find positively signifi-cant cumulative abnormal returns of around 1.03% on announce-ment dates; other larger windows also demonstrate positive abnor-mal returns of around 1.3%. In addition, cash dividends have differ-ent effects on share prices of firms from different industries. These results support the signaling hypothesis and are also consistent with prior findings of empirical research done on more developed mar-kets, i.e. the US and the UK.

Politics and Local Economic Growth: Evidence from India

Political favoritism affects the allocation of government resources, but is it consequential for growth? Using a close election regression discontinuity design and data from India, we measure the local economic impact of being represented by a politician in the ruling party. Favoritism leads to higher private sector employment, higher share prices of firms, and increased output as measured by night lights; the three effects are similar and economically substantive. Finally, we present evidence that politicians influence firms primarily through control over the implementation of regulation. (JEL D72, L51, O17, O18, O43, R11)

Meta Analysis of Dividend Policy Affect on Share Price Volatility

In Finance Literature, it is very controversial issue that whether dividend policy is significant and important decision or it is a residual decision, not affecting firm's performance at all. Researchers have contradict viewpoints in favor or against of dividend policy's importance in financial decisions. In this research work, it is tested whether dividend policy affects the share price of firms. If firm's share price changes with the change in dividend policy then dividend policy is an important financial decision and not a residual decision. In this study, analysis is done by using Meta Analysis, which involves collecting of previous studies’ result and then present the combined result of all studies together in quantitative form. So the purpose of this study is to present the combined result of previous studies on dividend policy and share price volatility by using Meta Analysis. Meta Analysis's summarized effect size (semi partial correlation) is-0.12595, which is significant @ 1% significance level. Result shows that dividend policy and share price volatility have negative and significant relationship. So increase in dividend payment may reduce the share price volatility or risk, that's why dividend policy is very important financial decision.

Does Market Myopia Encourage Managerial Myopia?

This paper develops a firm-level measure of market myopic pricing, which captures the extent to which the market overvalues short-term expected abnormal earnings relative to longer-term ones. The empirical analysis first reveals that myopically priced firms experience stronger market reactions to earnings announcements. It further documents that managers of myopically priced firms are more likely to manage earnings and less likely to invest in projects generating remote cash flows. The impact of market myopic pricing on corporate investment is concentrated in firms where managers cater the more to market pricing, that is in firms with greater short-term investor ownership, with CEO compensation more sensitive to firm share price, and with higher equity dependence. The robustness tests show that myopic pricing differs markedly from (under) overpricing and that our findings are robust to the consideration of market (under) overpricing. The results suggest a real effect of market mispricing on corporate investment. They indicate that, when managers cater to market pricing, market myopia encourages managerial myopia.

The Unintended Consequences of Divestment

Large divestment campaigns are undertaken in part to depress share prices of firms that investors see as engaged in harmful activities. We show that, for two reasons, these campaigns may be ineffective, even if they are large. First, they are self-defeating: because investors who divest earn lower and riskier returns than those that do not, they control a decreasing share of wealth over time, leading to the failure of even initially successful campaigns. Second, we show that, for standard managerial compensation schemes, divestment campaigns actually provide an incentive for executives to increase, not reduce, the harm that they create, making them counter-productive. Executives are induced to accede to campaigners' demands only if provided with more expensive contracts that reward short-termism. As short-termist contracts reduce shareholder welfare, they can only be implemented if campaigners control corporate boards, a goal directly contrary to the act of divestment.

Does EU emissions trading bite? An event study

The aim of this paper is to examine whether shareholders consider the EU Emissions Trading Scheme (EU ETS) as value-relevant for the participating firms. An analysis is conducted of the share prices changes as caused by the first publication of compliance data in April, 2006, which disclosed an over-allocation of emission allowances. Through an event study, it is shown that share prices actually increased as a result of the allowance price drop when firms have a lower carbon-intensity of production and larger allowance holdings. There was no significant value impact from firms׳ allowance trade activity or from the pass-through of carbon-related production costs (carbon leakage). The conclusion is that the EU ETS does ‘bite’. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.

Economic Crisis and Share Price Unpredictability: Reasons and Implications

During the recent financial crisis, there was a dramatic spike, across all industries, in the volatility of individual firm share prices after adjustment for movements in the market as a whole. In this Article, we demonstrate that a similar spike has occurred with each major downturn in the economy since the 1920s. The existence of this long history of crisis-induced spikes has not been previously recognized. The Article evaluates a number of potential explanations for these recurrent spikes in firm-specific price volatility, a pattern that poses a puzzle in terms of existing financial theory. The most convincing explanations relate to reasons why information specifically concerning individual firms would become more important in difficult economic times. This discovery of a long history of crisis-induced spikes in firm-specific price volatility has important implications for several areas of corporate and securities law. With regard to securities law, the Article concludes, for example, that because of these spikes, private damages actions are much less effective deterrents to corporate misstatements and insider trading in crisis times than in normal times. Consequently, substantial additional resources should be devoted to SEC enforcement actions during crisis times. The Article considers as well the most contentious corporate law issue of the last 30 years: the extent to which a target board of directors will be allowed to prevent shareholders from accepting a hostile takeover bid at a premium over the pre-bid share price. The Delaware Supreme Court’s approach to this question has been largely based on the difficult-to-define concept of “substantive coercion.” The Article concludes that these spikes could be a way of giving real meaning to the “substantive coercion” justification for board approval of defenses against hostile takeover attempts, but that the instances where this justification is appropriate will be rare.

Does a firm's political connection to government have economic value?

This paper reports new findings about differential impacts political events have on share prices of firms connected to government in power compared to firms with no political connections. Political connection has been alleged as valuable in popular press in this mid-income economy studied, so it is worth an investigation. Significant share price increases of 4% or more abnormal returns accrue to connected firms relative to unconnected firms when identical political events occur. The impact is very pronounced during a severe economic crisis, when the stakes were high about an incumbent government being reelected. Our finding of higher value of politically connected firms is due to the expected value of preferential treatments, preference in project selections, and access to state benefits. Thus, share prices of politically connected firms react with greater impacts than nonpolitically connected firms to announcements of identical political events.

Does a firm's political connection to government have economic value?

This paper reports new findings about differential impacts political events have on share prices of firms connected to government in power compared to firms with no political connections. Political connection has been alleged as valuable in popular press in this mid-income economy studied, so it is worth an investigation. Significant share price increases of 4% or more abnormal returns accrue to connected firms relative to unconnected firms when identical political events occur. The impact is very pronounced during a severe economic crisis, when the stakes were high about an incumbent government being re-elected. Our finding of higher value of politically connected firms is due to the expected value of preferential treatments, preference in project selections and access to state benefits. Thus, share prices of politically connected firms react with greater impacts than non-politically connected firms to announcements of identical political events.

Does the EU ETS Bite? The Impact of Allowance Over-Allocation on Share Prices

The aim of this paper is to find out whether shareholders consider the EU Emission Trading Scheme (EU ETS) as value relevant for polluting firms. An analysis is conducted of changes in share prices, caused by the first publication of annual compliance data. In April 2006, it turned out that there was an over-allocation of emission allowances, causing a large drop in allowance prices. Through an event study, the impact of this drop on share prices of firms under the EU ETS is analyzed. It is considered to what extent these share price impacts have been determined by (1) their carbon-intensity of production, (2) the pass-through of carbon-related production costs (carbon leakage), (3) their allowance holdings, and (4) their involvement in allowance trade. The results are, respectively, that the carbon-intensity of production has a negative value impact on firms, that larger allowances holdings are positively valued, and that the trade activity of firms has no significant impact. Due to measurement problems, carbon leakage cannot be reliably specified in the regressions. The conclusion is that the EU ETS does ‘bite’. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.

The performance effects of composition changes on sector specific stock indices: The case of European listed real estate

This paper examines the impact of changes in the composition of real estate stock indices, considering companies both joining and leaving the indices. Stocks that are newly included not only see a short-term increase in their share price, but trading volumes increase in a permanent fashion following the event. This highlights the importance of indices in not only a benchmarking context but also in enhancing investor awareness and aiding liquidity. By contrast, as anticipated, the share prices of firms removed from indices fall around the time of the index change. The fact that the changes in share prices, either upwards for index inclusions or downwards for deletions, are generally not reversed, would indicate that the movements are not purely due to price pressure, but rather are more consistent with the information content hypothesis. There is no evidence, however, that index changes significantly affect the volatility of price changes or their operating performances as measured by their earnings per share.

The wealth of information from quarterly financial reports in Malaysia

This study aimed to contribute to the Bursa Malaysia and other professional bodies in Malaysia by developing a quarterly report disclosure checklist, for the preparation of quarterly reports. In addition, it also examined the wealth of information of quarterly financial reports in Malaysia in terms of share price performance at the time of disclosure. Specifically, this study examined whether the level of disclosure of quarterly reports and the changes in earnings from previous quarter affect firm share price performance. The study used a final sample comprising of 304 quarterly report announcements from top 76 companies according to market capitalisation and listed on the main board of Bursa Malaysia for the financial year ending 2005. An event study methodology is employed to examine the information content of quarterly financial report announcements. The result of this study revealed that public listed companies in Malaysia have extensively disclosed information in the quarterly reports as per the requirements. However, this study failed to find a significant positive relationship between the announcement of quarterly reports and the level of disclosure with firm share price performance. The only hypothesis supported was the positive relationship between the changes in earnings and firm share price performance. This indicates that investors look directly in the earnings data in the quarterly reports rather than other disclosures. Key words: Quarterly financial reports, disclosure, performance.

Lying and Getting Caught: An Empirical Study of the Effect of Securities Class Action Settlements on Targeted Firms

Private suits have long been championed as a necessary mechanism not only to compensate investors for harms they suffer from financial frauds but also to enhance the deterrence of wrongdoing. But many critics have claimed that there a hidden dark side to the successful prosecution of a securities class action. In this paper, we shed light on these issues by examining whether the revelation of earlier misstatements, the initiation of private suit, and the payment of a substantial settlement, weaken the defendant firm so that the firm is permanently worse off as a consequence of the settlement. We find that defendant firms that settle securities class actions experience no significant declines in sales opportunities as a result of the lawsuit and settlement, but do experience a reduced level of operating efficiency while the lawsuit was pending (but not after it is settled). Most significantly, we also observe that defendant firms experience liquidity problems post-settlement and worsening Altman Z-scores (and a greater propensity to file bankruptcy) during that time period as well. Beginning with the filing of the class action, firm share prices are punished to the extent that investor returns do not recover. We conclude that there is something in our results for both sides of the debate regarding the effects of securities litigation. One side could point toward our findings as evidence that the litigation is not a zero sum game for wrongdoers where only the insurer pays. On the other hand, others would claim that settlements, if not the entire litigation process, are a menace because they drain funds from the corporation that could better be directed toward strengthening its financial position.

Revealing Returns: Do Rival Firm Share Prices Tell Us Anything About the Competitive Advantage of Acquisitions?

As efficient means for reallocating assets within the economy, acquisitions affect both the ac quirers and their rivals. When news of a take over hits the market, the target firm's share price usually rises sharply while the acquiring firm's share price usually falls or remains constant. But what about the movement in rivals' share prices when the takeover announcement occurs? Can those movements be accounted for somehow? Several possible explanations exist for specific movement in rivals' share prices:

Shareholder Returns for a Catalyst Award

Using an event study methodology, the authors examine firm share price reactions to the designation of a Catalyst Award. They find a positive relationship between the human resource award and share price reactions. In addition, they find varying degrees of support that timing, firm size, and labor force composition moderate share price reactions. Specifically, the authors find that earlier award announcements generate larger share price reactions than more recent award announcements. They also find support that larger firms reap greater share price reactions than do smaller firms. And last, they find limited support that the proportion of women in an industry moderates the award and share price relationship.