Higher Stock Price Research Articles

A Study on the Relationship between a Firm's Cash Dividend Policy and Its Value in Korean Stock Market

In this paper, we confirm that a firm's cash dividend policy affects its value and is influenced by different industries, market and time(the alterations of macroeconomic conditions). Our results suggest that firm value is positively associated with both cash dividend payout ratios and cash dividend smoothing. This implies that firms with high cash dividend payout ratios have high stock prices. However, using the idea of cash dividend smoothing, firms with high dividend smoothing(less increasing cash dividends compared with the previous year’s dividends, per share) also have high stock prices. These results imply that market prefers cash dividend payers, not high level of volatility of dividend payouts. Furthermore, our results, likewise present different directions and magnitudes of relationships between firm value and cash dividend policy, in accordance with industry, market and year in which firms operate. Furthermore, we could say that our results can be explained by agency, catering, financial flexibility and life-cycle theories, together.

Capital structure and managerial ownership: Evidence from Pakistan

This paper aims to investigate how managerial equity ownership affects the capital structure choice (debt-equity ratio) of non-financial firms listed on the Karachi Stock Exchange in Pakistan between 2008 and 2012. Earlier studies on Pakistan have explored the impact of ownership structure on firm performance. This study extends the literature by exploring the relationship of ownership structure, especially managerial ownership, on capital structure. Our results show an inverted U-shaped relationship between managerial equity ownership and leveraging. At a low level of managerial ownership, it is positively related to debt-equity ratio, assuming that managers use more debt, possibly seeking for higher returns on equity or higher stock price by leveraging. An inverted U-shaped relationship suggests that leveraging would be diminished after the point where managers become major residual claimants by owning a certain amount of equity ownership. Managerial opportunism may explain this tendency, though the causal relationship requires further discussion.

Developing Models to Predict Constituent Changes (Exclusion/Inclusion) of Securities in NIFTY 50 Index for Maximizing Investment Returns

A Common Observation regarding stock price behavior pre and post inclusion and exclusion of a company into indices is that share prices tend to increase prior to inclusion and decrease prior to exclusion. Although Eligibility criteria for inclusion and exclusion include Impact Cost (Liquidity), Market Capitalization, Domicile, Eligible types of Securities and Free Float but still if we can devise models that predict inclusion or exclusion using certain key performance indicator that are widely available, then, the stock market can surely provide a lot of scope for making money for the equity investors. This research work aims at developing two such models. Model-1 predicts with extreme accuracy whether or not any company from the existing 50 companies in Nifty Index will be excluded in the near future and Model-2 predicts if a company will be included as Nifty constituent using discriminant analysis. The KPIs used for the purpose of study include Rate of growth of Profit after tax (ROG-PAT), Rate of growth of Net Sales (ROG-SALES), Rate of growth of Market Capitalization (ROG-MCAP) and Interest Coverage Ratio (ICR). The model proposes a range of outcome values which can be used to predict inclusion or exclusion from NIFTY. A long (buy) position if taken in the securities that are predicted by the model to be included in the index, will help in generating higher returns as its financial performance will improve before the inclusion leading to higher stock price. Alternately, a short (sell) position taken in the securities that are predicted by the model to be excluded from the index, will also be a good bet as its financial performance will degrade before the exclusion, leading to lower stock price.

Forecasting of housing stock returns and housing prices

Purpose– The purpose of this paper is to create an endurance index of housing investor sentiment and use it to forecast housing stock returns. This study performs not only in-sample and out-of-sample forecasting, like many previous studies did, but also a true forecasting by using all lag terms of independent variables. In addition, an evaluation procedure is applied to quantify the quality of forecasts.Design/methodology/approach– Using a binomial probability distribution model, this paper creates an endurance index of housing investor sentiment. The index reflects the probability of the high or low stock price being the close price for the Philadelphia Stock Exchange Housing Sector Index. This housing investor sentiment endurance index directly uses housing stock price differentials to measure housing investor reactions to all relevant news. Empirical results in this study suggest that the index can not only play a significant role in explaining variations in housing stock returns but also have decent forecasting ability.Findings– Results of this study reveal the considerable forecasting ability of the index. Monthly forecasts of housing stock returns have an overall accuracy of 51 per cent, while the overall accuracy of 8-quarter rolling forecasts even reaches 84 per cent. In addition, the index has decent forecasting ability on changes in housing prices as suggested by the strong evidence of one-direction causal relations running from the endurance index to housing prices. However, extreme volatility of housing stock returns may impair the forecasting quality.Practical implications– The endurance index of housing investor sentiment is easy to construct and use for forecasting housing stock returns. The demonstrated predictability of the index on housing stock returns in this study can have broad implications on housing-related business practices through providing an effective forecasting tool to investors and analysts of housing stocks, as well as housing policy-makers.Originality/value– Despite different investor sentiment proxies suggested in the previous studies, few of them can effectively predict stock returns, due to some embedded limitations. Many increases and decreases inn prices cancel out each other during the trading day, as many unreliable sentiments cancel out each other. This dynamic process reveals not only investor sentiment but also resilience or endurance of sentiment. It is only long-lasting resilient sentiment that can be built in the closing price. It means that the only feasible way to use investor sentiment contained in stock prices to forecast future stock prices is to detach resilient investor sentiment from stock prices and construct an index of endurance of investor sentiment.

Stock price synchronicity and tails of return distribution

This paper uses stock price synchronicity to explain the cross-sectional variation in return asymmetries for firms listed in Finland, Sweden, Norway, and Denmark during the period between 2000 and 2012. Our results show that firms with high synchronicity have higher probability of generating heavier positive tails than firms with low synchronicity. We consider better information environment associated with these firms as the main reason behind this result. We argue that investors in these firms react less severely to negative news than investors in firms with low synchronicity. As a result of this asymmetric reaction to negative news, firms with high stock price synchronicity have higher probability of generating heavier positive tails than firms with low synchronicity. Our results are robust across sub-samples of large and small firms and across sub-samples based on geographic boundaries.

The Effect of Cash Dividend, Retained Earnings, and Stock Price of Manufacturing Company Listed In Indonesia Stock Exchange

This study aims to determine the effect of cash dividends per share, retained earnings per share, earnings per share, and leverage on the stock price of manufacture industry in Indonesia from 2008-2012. Research used secondary data in which the source was obtained indirectly through an intermediary medium or data processed from literatures and reports associated with this research. Independent variables in this study (x) are cash dividends per share, retained earnings per share, earnings per share, and leverage, while the dependent variable (y) is stock price. The samples used were 23 companies with purposive sampling method. The empirical results of this study indicate that cash dividends per share, retained earnings per share, earnings per share, and leverage has significant effect on the stock price. It is therefore the higher stock price will attract investors to invest their money. Hence, companies and investors need to attend cash dividends per share, retained earnings per share, earnings per share, and leverage as factors that affect the increase or decrease of the stock price.

Why does China's stock market have highly synchronous stock price movements? An information supply perspective

Morck et al. (2000) document that China's stock market is the second most synchronous market in the world, indicating an inferior information environment. These authors conjecture that government quality is associated with cross-sectional variance of information environments across countries, yet evidence on the channels through which government quality affects synchronous security prices is lacking. Our study fills the void and presents a channel for the link between government quality and information environment. We find that low-quality government with weak property rights protection is associated with less supply of firm-specific information. That is, firms ruled by these governments are refrained from disclosing their true performances, causing high stock price synchronicity in China. We also find that firms' hiding activities are affected by firms' political connectedness and external information mediation. Our study contributes to the literature explaining cross-country differences in information environments and its link to the country's political economy.

Dynamics of Idiosyncratic Volatility and Market Volatility: An Emerging Market Perspective

Estimating idiosyncratic volatility (IVOL) using various model-dependent and model-independent measures, we investigate the characteristics of aggregate IVOL in Malaysia over the period 1990–2008. The IVOL estimated in all models have similar patterns and has no trend over the sample period. There is evidence of episodic phenomenon. During financial crisis periods, market volatility is relatively higher than IVOL – a plausible reason is high correlation between firms' returns. Small firms and low-priced stocks appear to influence IVOL more than large firms and high-priced stocks. In Malaysia, market volatility and IVOL may predict GDP growth.

Nominal Prices Matter

Based on traditional finance theory, nominal stock prices should be inconsequential. However, the effect of nominal prices is not illusory once the price is not confounded with size. In this paper, we find that, controlled for size, high price stocks significantly outperform low price stocks by an abnormal 4.32% per year. Furthermore, high price stocks are less sensitive to market movements, display lower idiosyncratic volatility, lower idiosyncratic skewness, and lower illiquidity. Using a unique dataset, we observe that the number of individual shareholders is higher for low price stocks than for high price stocks in the same size decile, while institutional ownership is greater for high price stocks. The return differential between high and low price stocks is robust to various specifications and tests, controlling for idiosyncratic volatility, and using price cut-offs of $1 and $5. In addition to cross-sectional analyses, similar results are obtained in a longitudinal setting following stock splits. The difference in returns is partially explained by idiosyncratic volatility though the price effect continues to remain important.

An empirical model of fractionally cointegrated daily high and low stock market prices

This work provides empirical support for the fractional cointegration relationship between daily high and low stock prices, allowing for the non-stationary volatility of stock market returns. The recently formalized fractionally cointegrated vector autoregressive (VAR) model is employed to explain both the cointegration dynamics between daily high and low stock prices and the long memory of their linear combination, i.e., the range. Daily high and low stock prices are of particular interest because they provide valuable information about range-based volatility, which is considered a highly efficient and robust estimator of volatility. We provide a comparison of the Czech PX index with other world market indices: the German Deutscher Aktienindex (DAX), the U.K. Financial Times Stock Exchange (FTSE) 100, the U.S. Standard and Poor's (S&P) 500 and the Japanese Nihon Keizai Shimbun (NIKKEI) 225 during the 2003–2012 period, that is, before and during the financial crisis. We find that the ranges of all of the indices display long memory and are mostly in the non-stationary region, supporting the recent evidence that volatility might not be a stationary process. No common pattern is detected among all of the studied indices, and different behaviors are also observed in the pre-crisis and post-crisis periods. We conclude that the fractionally cointegrated VAR approach allowing for long memory is an interesting alternative for modelling range-based volatility.

Stock Prices, Investor Short-Termism, and Innovation

Firms can change their outstanding shares to manage their stock price levels. Those with lower stock prices tend to attract more speculative trading, which causes higher price volatility and may force their managers to excessively focus on short-term earnings at the expense of R&D and other long-term projects. Thus, we hypothesize that firms investing more in R&D prefer to set higher stock prices to mitigate investor short-termism and foster innovation. Indeed, we find that firms with more R&D capital tend to keep higher stock prices and are less likely to split their stocks to lower prices. Furthermore, high-priced firms are less likely to cut R&D to reverse an earnings decline, and less likely to fire their CEOs in the presence of poor earnings. More importantly, firms’ R&D productivity — in terms of generating patents and patent citations — tends to increase with their stock prices, even after controlling for firm valuation, stock returns, stock liquidity, and institutional ownership. For robustness checks, we examine stock splits, which allow mangers to re-set their stock price levels, and IPOs in which managers set an offering price range before shares are publicly traded. Consistent with our hypothesis, we find that IPO firms setting higher offering prices have more future innovation and that innovation declines after firms split their stocks. Thus, our results imply that managers of R&D firms actively set high stock prices to foster innovation, and support Warren Buffett’s wisdom that firms can use stock prices to attract preferred clientele.

Forecasting ability of the investor sentiment endurance index: The case of oil service stock returns and crude oil prices

Using a binomial probability distribution model this paper creates an endurance index of oil service investor sentiment. The index reflects the probability of the high or low stock price being the close price for the PHLX Oil Service Sector Index. Results of this study reveal the substantial forecasting ability of the sentiment endurance index. Monthly and quarterly rolling forecasts of returns of oil service stocks have an overall accuracy as high as 52% to 57%. In addition, the index shows decent forecasting ability on changes in crude oil prices, especially, WTI prices. The accuracy of 6-quarter rolling forecasts is 55%. The sentiment endurance index, along with the procedure of true forecasting and accuracy ratio, applied in this study provides investors and analysts of oil service sector stocks and crude oil prices as well as energy policy-makers with effective analytical tools.

Market Timing and Merger Waves

Merger activity tends to peak at times of high stock prices. I examine the allocation of equity issue proceeds conditional on the level of merger activity to shed light on the source of this empirical regularity. I find that firms do not allocate more of the equity proceeds raised in high merger times to increase debt repayment or to increase equity payouts. This lack of substitution of old for new (presumably cheaper) financing runs against the idea that equity overvaluation drives both merger activity and equity issuance. Instead, firms tend to permanently allocate more of the equity proceeds raised in high merger times to hoard cash. This is especially true in a sub-sample of financially constrained firms. This finding is consistent with the notion that times of high merger activity are also times of less adverse selection in the stock market. I also show that firms use significantly more of the equity proceeds raised in high merger times to increase investment. This increased allocation towards investment is associated with a gradual increase in debt issuance. These findings suggest that times of high merger activity are also times at which firms exercise growth options and prefer a conservative leverage ratio. This pattern is consistent with the existence of irreversibility and uncertain time-to-build in investment decisions. Overall, the evidence suggests that investment and financial frictions are important elements to explain the time series behavior of M&A activity.

On a Multinomial Logistic Mixture Autoregressive Processes

We propose a brand new class of time series model and analyze its statistical properties and estimation method. We demonstrated that the model is able to successfully model and forecast the high frequency stock prices.

The Impact of Oil Price Shocks on the Returns in China’s Stock Market

:The main goal of this paper is to study the relationship between oil price shocks and mainland China’s stock market. From empirical study, we have found that the impact of oil price shocks on stock prices in China has been mixed. In contrast to the conventional wisdom that higher oil prices may cause lower stock prices, positive shocks to oil-market-specific demand resulted in both higher real oil prices and higher stock prices, which helps explain the boom of the Chinese stock market as oil prices were increasing in 2007. However, global oil demand and supply shocks had no significant effects.

R&D reporting methods and firm value: evidence from China

Purpose – The purpose of this paper is to investigate how different research and development (R&D) accounting choice (capitalization and expensing) affects the value of the listed companies under the new Chinese Accounting Standards (CAS) background. According to new CAS, R&D expenditure can either be expensed as incurred as a whole or partly capitalized and partly expensed from 2007. Design/methodology/approach – The paper takes the form of an empirical study using a hand-collected sample of 3,664 observations from Chinese listed companies over 2007–2012 timeframe. Findings – It is found that different methods of reporting R&D investments do affect the value of listed firms in China. Specifically, the firms that chose to capitalize their R&D investments have higher stock price and return. On the contrary, the companies that select to expense their R&D expenditures have lower stock price and return. It is also found that capitalized R&D investments are positively connected to stock price, while expensed R&D expenditures are negatively related to stock prices. Research limitations/implications – This paper researches and finds the value relevance of R&D capitalization and expensing from the accounting report method itself. This explores some interesting research questions. Does choice of accounting method for R&D expenditure affect firm valuation? Do different methods of reporting R&D investments transfer different signal to investors? Does expensed R&D carry a negative signal to investors? So it can expand the existing R&D area of research. Practical implications – This paper can provide empirical evidence and decision support for corporate managers, R&D policy makers and investors in a non-mandatory disclosure market of R&D expenditure. Because different R&D accounting choice has different market reactions, managers can choose a favorable method of reporting R&D investments to raise their firm’s stock price. Policy makers should standardize accounting treatment of R&D expenditure, strengthen the disclosure of R&D information and develop a detailed, workable R&D capitalization accounting policies and procedures. Investors can make the right judgment and decision on business innovation capability and future development only by getting more R&D investment information. Originality/value – Different from present studies focusing on the value relevance of R&D investment, this paper explores an interesting topic showing how different methods of reporting R&D investment in China affect the value of the firms.

Perceptions of Investors and Stockbrokers on Corporate Social Responsibility: A Stakeholder Perspective from India

This paper aims to understand the perceptions of shareholders and brokers regarding corporate social responsibility (CSR) initiatives by Indian companies. The research, presented in this paper, employs stakeholder theory to examine the perceptions of investors and sharebrokers on CSR in the context of a fast growing country, India. The data has been collected by using semistructured survey instrument. The findings of the study highlight that the respondents in both categories of stakeholder groups agree that CSR‐oriented companies enjoy higher levels of investor confidence, which is reflected in higher stock prices, and leads to enhanced reputation and corporate goodwill. The research demonstrates that Indian companies are in fact implementing CSR initiatives and that stakeholders have a considerable interest in such initiatives. Both the groups expect higher CSR disclosures from large corporations and multinational companies operating in India.Educational initiatives have received maximum attention from the both the groups of stakeholders followed by the environmental issues. Investors are least aware of healthcare and rural development initiatives possibly because of the relatively low penetration of Indian financial markets into the rural areas. This study demonstrates that the stakeholder theory is a useful tool for collecting and evaluating CSR data and explains that the stakeholder perception of CSR performance determines corporate initiatives to a certain level. The findings would help in building consensus on strengthening the implementation and establishing the future CSR framework in emerging economies and other parts of the world. Copyright © 2014 John Wiley & Sons, Ltd.

Does Trading by Small Investors Improve or Deteriorate Price Efficiency? Evidence from the Minimum Trade Unit Changes on the Korea Exchange

In this study, we investigate the effect of minimum trade unit (MTU) reductions on the Korea Exchange (KRX) on price efficiency. The KRX switched its MTU from 10 shares to one share for high-price stocks twice, once in December 2004 and once in July 2006. The MTU changes were intended to attract small individual investors to the markets for high-price stocks. The MTU reductions on the KRX are different from previous cases of MTU reductions in other markets in that the KRX MTU reductions are not chosen by firms but are mandated by the exchange. Using these rare events, we examine whether the reductions in MTU and ensuing small investor participation enhance or deteriorate price efficiency. We examine three variables as indicators of price efficiency: return volatility, residual volatility, and the half-life of return volatility shock estimated from a generalized autoregressive conditional heteroskedasticity (GARCH) model. We find evidence of improved price efficiency from the 2004 event. For the 2004 sample, both return variance and residual return variance declined significantly after the MTU reduction. We also find evidence of reduction, albeit weak, in the half-life of volatility shock for the same sample. Meanwhile, for the 2006 sample, we do not find any changes in return variance or residual variance, nor do we find any evidence of change in the half-life of volatility shock. The difference in the patterns of changes in variables between the 2004 and 2006 events appears to be attributable to differences in the price levels of the stocks that were affected by the MTU changes and, consequently, a difference in reactions by small investors.

Are Entrepreneurs Special? Evidence from Board Appointments

We study the appointment of entrepreneurs as outside directors to examine their effect on corporate outcomes in firms not created by them. Entrepreneur directors are more likely to join smaller firms and firms whose founders currently serve as directors. Appointments of entrepreneur directors attract higher stock price reactions than appointments of other outside directors and firm value increases with the number of entrepreneur directors. The value effect is greater when the firm is smaller or operates in more competitive industries. Entrepreneur directors are also associated with higher corporate risk-taking, increased R&D investments, and improved revenue growth.

Stock dividend ex-day effect and market microstructure in a unique environment

This paper examines the stock dividend ex-day effect on the Muscat Securities Market (MSM), which is of interest because several of the market microstructure explanations for the ex-day effect can be ruled out. We find that there are positive abnormal returns on Omani stock dividend ex-days. We also find that firms distributing stock dividends have higher stock prices than firms that are in the same industries but do not distribute stock dividends. In addition, we find that the positive abnormal returns are positively related to stock price increases in the pre-announcement period and to stock dividend percentages. This evidence suggests that stock dividends in Oman might be used to reduce stock prices.