French Stock Exchange Research Articles

A pandemic business interruption insurance.

We analyze how pandemic business interruption coverage can be put in place by building on capitalization mechanisms and a portfolio management strategy. As evidenced with COVID-19, pandemics affect economic sectors in differentiated ways: some are very severely affected because their activity is heavily impacted by travel bans and constraints on work organization, while others are more resistant. This opens the door to risk-coverage mechanisms based on a portfolio of financial securities, including long-short positions and options in stock markets. We show that such a strategy allows insurers to offer business interruption coverage in pandemic states, while simultaneously hedging the risks associated withalternating bullish and bearish non-pandemic states. These conclusions contrast sharply with the idea of governments being the only solution to the pandemic insurability problem. They are derived from a theoretical model of corporate risk management, and their practical relevance is illustrated by numerical simulations, using data from the French stock exchange.

MANAGEMENT AND TECHNOLOGICAL INNOVATIONS: IS THERE A VIRTUOUS CIRCLE?

Purpose: The main aim of this paper is to analyse the association between management and technological innovations. Specifically, we determine whether organisational innovations influence technological ones or vice versa. Design/approach: This study is drawn from a sample of listed firms on the SBF120 1 index and French Community Innovation Surveys (CIS) carried out between 2004 and 2016. Findings: Our study provides the following: First, we show that the introduction of new technological innovations could stimulate organisational changes in a firm’s structure. Second, the adoption of new management practices is likely to increase the introduction of new processes, however, it is not sufficient to favour the development of new or significantly improved products. Research limitations/implications: We studied different types of innovations, but we have ignored other forms of non-technological innovation, such as marketing innovations. It would be interesting to analyse the interaction between marketing and technological innovations. Practical implications: From a business perspective, we emphasise that firms should introduce new organisational methods in the firm’s business practices, workplace organisation, or external relations, and adopt managerial transformations to boost their innovation potential. Originality/value: To the best of our knowledge, this is the first paper that looks at the dynamic character between organisational and technological innovations, especially through a longitudinal study. 1 The SBF120 index consists of the largest 120 capitalizations listed on the French stock Exchange market (SBF: Société des Bourses Françaises).

The effectiveness of insider trading disclosure policies: US and EU comparison

PurposeThe purpose of this study is to examine the effectiveness of financial market rules in protecting minorities.Design/methodology/approachThe study compares two alternative disclosure rules on insider trading, namely, the market abuse directive (Directive 2004/72/EC), inspired from the United State (US) insider trading regulation enacted by the Sarbanes–Oxley act and the transparency directive enacted by the European (Directive 2004/109/EC) dealing with the crossing of the shareholding threshold. To investigate which one is more effective in signaling reserved information, and thus in reducing information asymmetry, the authors run an event study on the French context, where both regulations are adopted. The data were hand collected from the French stock exchange securities commissions during the two years following the implementation of the two regulations in 2004. The final sample consists of 363 insiders trading and 35 crossing shareholding thresholds for 10 top French firms during the period 2006-2007.FindingsThe results show that the French market reacts significantly to insider trading, but poorly to the crossing shareholding thresholds. Abnormal returns are greater after insider purchases than after crossing up thresholds. These findings support the superiority of the insider disclosure regulation, as it has better information content and provides better protection to minorities.Research limitations/implicationsThe study contributes to the corporate governance literature by comparing two disclosure-trading policies. The authors conclude that regulation of disclosure of insider trading along the lines of US disclosure rules is more informative to the market and thus more relevant and important than disclosure of cross-threshold trades.Practical implicationsThe study contributes to the corporate governance literature by comparing two disclosure-trading policies. The authors conclude that regulation of disclosure of insider trading along the lines of US disclosure rules is more informative to the market and thus more relevant and important than disclosure of cross-threshold trades. This finding can be helpful for the securities lawmakers and regulators in the process of insider trading law enforcement.Originality/valuePrevious researchers approached the question of insider trading focusing on the identity of insiders. In the research, the authors address the question from another perspective, namely, the crossing of thresholds. Another methodological contribution of the study is the use of a market model that incorporates GARCH (generalized autoregressive conditional heteroskedastic) effect and time-varying systematic risk parameter (β), which is recommended to tackle the classical event study problem of detecting the exact timing of the event.

DO DIRECTORS’ ATTRIBUTES INFLUENCE INNOVATION? EMPIRICAL EVIDENCE FROM FRANCE

The main aim of the current paper is to analyse how the directors’ characteristics could influence innovation. We study specifically the effect of demographic attributes, such as age, gender, nationality, educational degree and academic background on innovation. Innovation is measured by (1) the firm’s ability to engender innovation in things such as new or improved product/process and the number of patents and (2) innovation expenditures, like, for example, R&D spending on innovative projects and the number of scientists and experts per R&D teams. This study is conducted on the firms listed on SBF120 index between 2002 and 2013. The SBF120 index consists of the 120 largest capitalisations listed on the French Stock Exchange market (SBF: Société des Bourses Françaises). It provides the following results. First, the presence of women on the board positively influences product innovations while the presence of independent directors fosters the number of patents and process innovations. Secondly, highly educated directors can better understand complex decisions and absorb new ideas and technologies, which increase innovative products. Regarding the academic degree, we highlight that business educated directors seem to marginalise innovation investments as they are more likely to focus on activities with short-term financial returns. Then, directors of different ethnic, cultural backgrounds and different nationalities seem to stimulate a firm to improve or develop new products. Moreover, older directors are less risk-tolerant than younger ones: they invest less in risky R&D investments. By looking at the impact of various types of directors’ characteristics on innovation, and by taking into account various types of innovation; this paper brings practical insights to board structures issues. This paper contributes to the debate on the urgent need to increase the firms’ capacity to appoint on board individuals displaying diverse types of knowledge, abilities, skills and networking that could drive more innovations.

A Pandemic Business Interruption Insurance

We analyze how pandemic business interruption coverage can be put in place by building on capitalization mechanisms. The pandemic risk cannot be mutualized since it affects simultaneously a large number of businesses, and furthermore, it has a systemic nature because it goes along with a severe decline in the real economy. However, as shown by COVID-19, pandemics affect economic sectors in a differentiated way: some of them are very severely affected because their activity is strongly impacted by travel bans and constraints on work organisation, while others are more resistant. This opens the door to risk coverage mechanisms based on a portfolio of financial securities, including long-short positions and options in stock markets. We show that such financial investment allow insurers to offer business interruption coverage in pandemic states, while simultaneously hedging the risks associated with the alternation of bullish and bearish non-pandemic states. These conclusions are derived from a theoretical model of corporate risk management, and they are illustrated by numerical simulations, using data from the French stock exchange.

Transaction Costs, Option Prices, and Model Risk in Fair Value Accounting

This paper examines the reliability of option fair value estimates in the presence of transaction costs. The Black Scholes Merton (BSM) framework assumes zero transaction costs and thus might not provide a reasonable approximation in this context. We investigate the model adjustments companies make to their BSM models to deal with these transaction costs. We specifically examine Employee Stock Option (ESO) plans listed on the French stock exchange, as detailed disclosure on modeling is available for these ESOs. Our analysis questions the reliability of these model adjustments, especially their bias and the extent to which they provide a faithful representation of option fair values. Holding parameter values constant, we find that the model adjustments lead to a median understatement of 52% compared to the BSM model price, higher than the discount we observe for the opportunistic determination of model parameters (below 20%). The paper contributes to the fair value literature by highlighting model risk in the fair valuation of options. This model risk stems from assumptions made about the size of transaction costs and complements the notion of parameter risk analyzed in previous literature. As a result, the model itself might be a possible channel for fair value management.

PRICE-GENERATING CHARACTER OF INFORMATIONS ABOUT NET FINANCIAL RESULT IN THE CASE OF WARSAW STOCK EXCHANGE

For most governments in the world, a fundamentally strong economy is the goal of their politics. One of the determiners of such economy is operating and developed capital market. This process, however, entails the necessity of its effectiveness. In relation to the capital market, the effectiveness may be defined in three dimensions [Sharpe, 1992]. One of them is the so-called information efficiency. The first man who drew attention on the possibility of occurrence informatively effective capital market was L. Bachelier [1900]. In his study he included a theory of price formation on the French stock exchange. However, its first actual definition has been put forward much later by E. Fama [1965]. According to it, on efficient capital market “prices always fully reflect all available information”.There is a number of information that may impact on the prices of financial instruments. These include: news of profit sharing (dividend payments), stock exchange analysts' recommendations, transactions made by insiders, split or resplit shares and information not necessarily related to particular company or an economic sector. Moreover, this information may be evidences derived from accounting. Data from the accounting system has a very significant impact related to the prices of companies listed on global stock exchanges. They enable the investors’ risk on the capital market. Concerning to that, they can improve the selection of entities characterized by a good economic and financial situation. Placing funds in these can mean that investors will achieve above-average profits in the future.One of the most important data coming from the accounting system is the information about companies net financial result (net profit or loss). Informing market participants about the net financial result may affect the price volatility of the issuer's financial instruments. It was already written about in current of the capital market research in accounting in the 1960s [Ball, Brown, 1968].Main aim of this paper was examination the impact of announcement information about net financial result on the market value the biggest companies listed on the Warsaw Stock Exchange grouped in the WIG20 index. To achieve this aim have used the event study methodology-one of the methods of measuring information efficiency of the capital market [Fama, 1969]. It is a research instrument used to assess investors’ reactions, while on the other hand it can be used as an element of financial market efficiency evaluation. For this purpose constructed 5-day long event window (where t0 was a day of announcement the financial report). Using the event study methodology, were calculated the abnormal returns for each quarterly report publications between 2016 and mid-2018 for each company in WIG20 index. Results of this paper are given below.

From efficient markets to adaptive markets: Evidence from the French stock exchange

This paper examines the degree of market efficiency of the French Stock Market and tries to check both the efficient market hypothesis (EMH) and the adaptative market hypothesis (AMH). We use a rolling variance ratio test approach in order to provide an overview of the efficiency behavior from 1988 to 2018. We find that our results are consistent with the AMH. Indeed, it seems that the French stock market presents successive periods of efficiency and inefficiency. Moreover, inefficiency periods coincide with major macroeconomics events.

Communicating CSR Through Collaborative Partnerships: The Case of the CAC 40 Companies

Corporate Social Responsibility (CSR) communication is nowadays of paramount importance given stakeholder’s high level of skepticism induced by corporate scandals over the years. Thus, CSR collaborative partnerships between companies and their wide array of stakeholders can emerge as a tool to offset these consequences. Through a content analysis of the 2015 corporate reports of the 40 companies in the French Stock Exchange (CAC40) and drawing from the stakeholder theory and the social alliances theory, this study aims to determine the nature and specter of application of these partnerships and present the potential strategic usages that they can provide in terms of CSR communication. The proposed conceptual framework presents the needed components to be taken into consideration in order to benefit from the potential strategic usages of CSR collaborative partnerships in their four major forms.

Are Institutional Investors Beneficial to Family Firm Performance? Evidence from the French Stock Exchange

In the context of listed family firms, prior research pointed out that agency problems between majority family owners and minority shareholders are the most prevalent in European countries where shareholders’ protection is weak. This study aims at analysing how the presence of different types of institutional investors alleviates or enhances this form of agency problem. Examining the French stock market (SBF120) over the period 2002-2011, our results indicate that having a family as the first shareholder hampers financial performance. Our findings also reveal that having an institutional investor as second blockholder can be beneficial or detrimental to firm performance. Considering the distinctive nature of institutional investors, this research shows that the combination of a family as the first shareholder and a pressure-insensitive institutional investor as second blockholder exerts a positive influence on firm performance while a negative effect is found when the institutional investor is pressure-sensitive. These results confirm that the nature and the distribution of ownership is particularly important when analysing agency problems in listed firms.

Legitimacy profiles of women directors on top French company boards

Purpose – The purpose of this paper is to question the profiles of female directors on top French company boards. It explores the legitimacy attributes of current female directors to identify the profiles sought recently, as firms approach the need to make many new appointments to fulfill gender quotas for supervisory boards, given that the proportion of women on a corporate board must reach 40 percent by 2017, with an intermediate level of 20 percent by 2014. Design/methodology/approach – The authors gathered numerical and qualitative biographical data on all SBF 120 (French stock exchange index) firms’ female directors from annual reports and web sites over seven years (from 2003 to 2009). The authors constructed an SPSS database to categorize the individuals into various orders of legitimacy. Findings – Drawing on director bio-data, the authors extend previous work on four legitimacy assets (family ownership; academic excellence; strong ties to the State; and top career), by adding a fifth asset (representative director), and contribute a gender dimension to the literature on personal legitimacy. Owning-family ties and academic excellence are still particularly salient in explaining legitimacy of women directors. A new source of female directors since 2005 is the pool of foreign women, outside the elite Grandes Ecoles system. Research limitations/implications – The authors had data for directors of 115 companies out of the SBF 120 firms. The authors also lacked data for seven women out of 144 appointed during the period, despite efforts to track down data from public sources. Practical implications – These legitimacy profiles present different challenges for management development as those responsible for appointing several women to their boards in a short space of time will find out. Social implications – The authors highlight that with the diminishing role of family members on large corporate boards, more women directors need to be found, developed and mentored. If this approach is followed, new female directors with solid achievements can be appointed, without having their legitimacy as directors challenged by resistant males. Women will thus be able to take their legitimate place in French boardrooms and contribute their diverse experiences and knowledge. Originality/value – This paper questions the legitimacy assets of female directors, which can be clustered into three groups: combined elite education and top corporate career; owning-family membership; and representative directors. These legitimacy profiles present different challenges for management development as those responsible for appointing several women to their boards in a short space of time will find out.

The Determinants of Intellectual Capital Disclosure: Evidence from French stock exchange

The objective of this paper is to identify the determinants of voluntary intellectual capital disclosure (ICD) by analyzing a panel of French listed companies observed over the period 2006-2010. The results confirm that ownership structure, size, debts and the weight of activated goodwill are the determinants of voluntary ICD which allows managers to reduce agency conflicts and solve the inadequacy of financial reporting by disclosing relevant information (signals) for investors. However, our results disprove that voluntary ICD could be a process of legitimizing targeting other stakeholders.

Earnings management and corporate governance related to mandatory IFRS adoption: evidence from French-listed firms

This study investigates how mandatory adoption of the new accounting standards and enforcement mechanisms such as Big 4 auditors and board independence influence earnings management. Based on a sample of 120 firms listed on the French stock exchange, we find that the mandatory adoption of IFRS does not affect managerial opportunism. In contrast with previous studies, our results show that the corporate governance mechanisms are not sufficiently strong to enforce the application of the IFRS standards in France. This can be due to the special characteristics of the French context known by the weak investors' protection rights even in the post–IFRS period. IFRS can be of high quality just if they are accompanied with some factors like efficient governance mechanisms and appropriate enforcement.

How Do Price Limits Influence French Market Microstructure? A High Frequency Data Analysis in Terms of Return, Volatility and Volume

The purpose of the regulated halts on stock exchange markets is to spread the information on the market and to protect the interests of the small shareholders. The aim of this work is to empirically investigate the price limits on the French stock exchange market. We analyze the impact of such halts on the main market factors: return, volatility and volume. Our study concerns intraday data relating to securities that belong to the CAC40 stock index over the period January 1998-December 2001. Finally, we put forward a mitigated effectiveness of the price limits, depending on the period.

Households Learning in the Dark: New Evidence from Retail Traders

This paper uses a new dataset and a specific feature of the French stock exchange to study the behavior of individual investors actively trading stocks. Consistent with prior literature, the trading activity of individual investors increases (decreases) following high (low) performance. I carefully split individual investors' performance into (i) performance related to the exposure of their trades to systematic risk factors such as the market premium, the excess returns on small stocks and the excess returns on value stocks, and (ii) residual performance. I show that trading activity reacts to both (i) and (ii) and that this does not seem to be explained by any strategic behavior. Instead, a simple model where individual investors are ex ante uncertain about their ability and factor exposure and trade to learn about them generates predictions consistent with the above evidence as well as additional predictions about learning dynamics that are also borne out by the data.

Criteria for the Determination of the CEOs Bonuses in Large French Companies

The purpose of this article is to analyse the criteria which determine the bonuses of the CEOs in the companies listed in the CAC 40, the French stock exchange index. The question of incentives for managers has been generally analysed in terms of the agency relationship. If one refers to the agency theory, the CEOs are agents who have the role of managing the company in the interests of the shareholders. Their objective is thus to improve the financial performance without worrying themselves with the interests of other concerned parties. The results of our research show that the executive managers are evaluated based on criteria of financial performance (net profits, dividend distribution, share prices) as the agency theory would suggest. As regards social and environmental criteria, these are totally inexistent.

Seasonal Mackey–Glass–GARCH process and short-term dynamics

The aim of this article is the study of complex structures which are behind the short-term predictability of stock returns series. In this regard, we employ a seasonal version of the Mackey–Glass–GARCH(p,q) model, initially proposed by Kyrtsou and Terraza (Computat Econ 21:257–276, 2003) and generalized by Kyrtsou (Int J Bifurcat Chaos 15(10):3391–3394, 2005). To unveil short or long memory components and non-linear structures in the French Stock Exchange (CAC40) returns series, we apply the test of Geweke and Porter-Hudak (J Time Ser Anal 4:221–238, 1983), the Brock et al. (Econom Rev 15:197–235, 1996) and Dechert (An application of chaos theory to stochastic and deterministic observations. Working paper, University of Houston, 1995) tests, the correlation-dimension method of Grassberger and Procaccia (Phys 9D:189–208, 1983), the Lyapunov exponents method of Gencay and Dechert (Phys D 59:142–157, 1992), and the Recurrence quantification analysis introduced by Webber and Zbilut (J Appl Physiol 76:965–973, 1994). As a confirmation procedure of the dynamics generating future movements in CAC40, we perform forecast with the use of a seasonal Mackey–Glass–GARCH(1,1) model. The interest of the forecasting exercise is found in the inclusion of high-dimensional non-linearities in the mean equation of returns.

Seasonal Mackey-Glass-Garch Process and Short-Term Dynamics

The aim of this article is the study of complex structures which are behind the short-term predictability of stock returns series. In this regard, we employ a seasonal version of the Mackey-Glass-GARCH(p,q) model, initially proposed by Kyrtsou and Terraza (2003) and generalized by Kyrtsou (2005, 2006). It has either negligible or significant autocorrelations in the conditional mean, and a rich structure in the conditional variance. To reveal short or long memory components and non-linear structures in the French Stock Exchange (CAC40) returns series, we apply the test of Geweke and Porter-Hudak (1983), the Brock et al. (1996) and Dechert (1995) tests, the correlation-dimension method of Grassberger and Procaccia (1983), the Lyapunov exponents method of Gen?ay and Dechert (1992), and the Recurrence Quantification Analysis introduced by Webber and Zbilut (1994). As a confirmation procedure of the dynamics generating future movements in CAC40, we forecast the return series using a seasonal Mackey-Glass-GARCH(1,1) model. The interest of the forecasting exercise is found in the inclusion of high-dimensional non-linearities in the mean equation of returns.

The Information Content of Dividend Increases Announcements: Evidence from the French Stock Exchange

The Information Content of Dividend Increases Announcements: Evidence from the French Stock Exchange

Performance and Behavior of Family Firms: Evidence from the French Stock Market

This paper empirically documents the performance and behavior of family firms listed on the French stock exchange between 1994 and 2000. On the French stock market, approximately one third of the firms are widely held, whereas the remaining two thirds are family firms. We find that, in the cross-section, family firms largely outperform widely held corporations. This result holds for founder-controlled firms, professionally managed family firms, but more surprisingly also for firms run by descendants of the founder. We offer explanations for the good performance of family firms. First, we present evidence of a more efficient use of labor in heir-managed firms. These firms pay lower wages, even allowing for skill and age structure. We also find that descendants smooth out industry shocks and manage to honor implicit labor contracts. Second, we present evidence consistent with outside CEOs in family firms making a more parsimonious use of capital. They employ more unskilled, cheap labor, use less capital, pay lower interest rates on debt and initiate more profitable acquisitions.