Long-term Event Study Research Articles

Blockchain adoption and operational performance: A secondary data analysis on effects and contingencies

PurposeThis study analyzes the performance implications of adopting blockchain to support supply chain business processes. The technology holds as many promises as implementation challenges, so interest in its impact on operational performance has grown steadily over the last few years.Design/methodology/approachDrawing on transaction cost economics and the contingency theory, we built a set of hypotheses. These were tested through a long-term event study and an ordinary least squares regression involving 130 adopters listed in North America.FindingsCompared with the control sample, adopters displayed significant abnormal performance in terms of labor productivity, operating cycle and profitability, whereas sales appeared unaffected. Firms in regulated settings and closer to the end customer showed more positive effects. Neither industry-level competition nor the early involvement of a project partner emerged as relevant contextual factors.Originality/valueThis research presents the first extensive analysis of operational performance based on objective measures. In contrast to previous studies and theoretical predictions, the results indicate that blockchain adoption is not associated with sales improvement. This can be explained considering that secure data storage and sharing do not guarantee the factual credibility of recorded data, which needs to be proved to customers in alternative ways. Conversely, improvements in other operational performance dimensions confirm that blockchain can support inter-organizational transactions more efficiently. The results are relevant in times when, following hype, there are signs of disengagement with the technology.

The Effect of Stock Splits on Liquidity: Evidence from China

Despite many theories that explain the stock split announcement by companies, it has been viewed and aimed differently by corporate managers, regulators and investors. Many studies suggest stock splits are often used to lower the price and bring it to an acceptable trading range. However, few studies focus on emerging economies like China. The present study employs a market model to estimate aberrant volumes. Cumulative abnormal volumes and buy-and-hold abnormal volume estimations were used in accordance with a long-term event study. It was found that after firms have gone for stock splits, their liquidity has increased. Thereby suggesting that there is a significant influence on the post-split liquidity as was found in case of the firm that have gone for stock splits listed on China’s Shanghai Stock Exchange during the select period. Also, a statistically significant upward trend was also observed following the split by the firms. Study findings can be useful to regulators, managers, and investors per their interests. This paper has a limitation of using market model. Future research could also increase the time period and the number of firms that this paper has analyzed.

Information security and value creation: The performance implications of ISO/IEC 27001

Although protecting information is the key challenge in a business environment characterized by increasing digitalization and connectivity, the impact of firms’ investments in information security on their financial performance is unclear. In this paper, we focus on ISO/IEC 27001 (i.e., the most renowned norm in the field and the fourth most widespread ISO standard) and analyze the relationship between the attainment of the certification and firms’ financial performance. We developed a set of theory-grounded hypotheses and tested them through a long-term event study complemented by an ordinary least squares regression on a dataset of 143 US-listed companies. The results indicate that the ISO/IEC 27001 certification is associated with improvements in profitability, labor productivity, and (partially) sales performance. The impact appears affected by the level of internationalization of the certified firm. The study contributes to the scientific debate on information security and certifications by developing the first large-scale empirical investigation based on secondary data on the financial implications of ISO/IEC 27001. Moreover, we further deepen the current knowledge on the effects of international management standards on firms’ performance thus enabling comparisons with other major management system standards.

Bayesian Semiparametric Regression Analysis of Multivariate Panel Count Data

Panel count data often occur in a long-term recurrent event study, where the exact occurrence time of the recurrent events is unknown, but only the occurrence count between any two adjacent observation time points is recorded. Most traditional methods only handle panel count data for a single type of event. In this paper, we propose a Bayesian semiparameteric approach to analyze panel count data for multiple types of events. For each type of recurrent event, the proportional mean model is adopted to model the mean count of the event, where its baseline mean function is approximated by monotone I-splines. The correlation between multiple types of events is modeled by common frailty terms and scale parameters. Unlike many frequentist estimating equation methods, our approach is based on the observed likelihood and makes no assumption on the relationship between the recurrent process and the observation process. Under the Poisson counting process assumption, we develop an efficient Gibbs sampler based on novel data augmentation for the Markov chain Monte Carlo sampling. Simulation studies show good estimation performance of the baseline mean functions and the regression coefficients; meanwhile, the importance of including the scale parameter to flexibly accommodate the correlation between events is also demonstrated. Finally, a skin cancer data example is fully analyzed to illustrate the proposed methods.

How does reverse factoring affect operating performance? An event study of Chinese manufacturing firms

PurposeAs a popular supply chain finance (SCF) strategy, reverse factoring has been widely adopted by buyer firms. However, the extant literature provides scant empirical evidence on the performance effect of reverse factoring. The purpose of this study is to seek to narrow this gap by empirically examining the relationship between reverse factoring and operating performance and the contingency conditions of this relationship.Design/methodology/approachBased on a sample of 167 announcements of reverse factoring implementation made by publicly listed Chinese manufacturing firms between 2014 and 2018, this paper employs a long-term event study approach to analyze the operating performance effect of reverse factoring as well as the moderating effects of production and innovation capabilities.FindingsThe event study results indicate that reverse factoring has a positive effect on buyer firms' operating performance in terms of cost efficiency and operating margin. In addition, both production and innovation capabilities positively moderate the relationship between reverse factoring and operating margin. However, neither of them moderates the relationship between reverse factoring and cost efficiency.Originality/valueThis is the first study that empirically examines the impact of reverse factoring on operating performance based on secondary data. Furthermore, it sheds light on the SCF literature by providing insights into the contingency effects of production and innovation capabilities, which also extends our understanding of the application of extended resource-based view in SCF research.

Facing Turbulences with Organizational Slacks in a Corporate Scandal: Firm Value and Risks

Corporate scandals happen not only when firms and managers deliberately commit fraud and harm the environment but also when firms have to recall malfunctioning products. Corporate scandals are more frequent than ever. Since information can be accessed easily and spread instantly, local issues quickly become global corporate scandals, which increases their strength and decreases the time for firms to implement a recovery plan. Corporate scandals bring uncertainty to the future of the firm’s financial health. Thus, they decrease expectations for returns and increase volatility of future cash-flows. Organizational slacks are resources detained by a firm to face an unexpected event. We believe they serve as a buffer in a situation of corporate scandal. Our study aims to determine the buffering role of organizational slacks can generate, when a corporate scandal hits a firm. To measure it, we use the event study methodology. We perform both short-term and long-term event study analyses. The former is based on a sample of 362 North American listed firms regarding 1,940 corporate scandals, from 2007 to 2018, and it measures the difference between the normal stock returns of the firms and the stock returns happening on the days surrounding the corporate scandal. The latter is based on 333 North American listed firms regarding 1,719 corporate scandals, from 2007 to 2018, and it determines the fluctuations of the idiosyncratic risk in a period of 252 days following the corporate scandal. Our findings reveal key insights into the role of organizational slacks in a corporate scandal situation. Moreover, we analyze the buffering effect of organizational slacks in an unstable environment by introducing the moderating role of market turbulence. Results show that: (1) a corporate scandal has a negative impact on the firm value and firm volatility; (2) organizational slacks have a positive impact on the scandal’s negative effect on the firm value and firm volatility; (3) and, detaining organizational slacks increases the negative effect of the corporate scandal on the firm value in a turbulent market environment, but mitigates firm volatility in the same environmental conditions. Our primary contribution is to the management-finance literature, in the way that we integrate research on organizational slacks and corporate scandal literature with frequent changes in fit between market and management decisions. Our second contribution is to managers, as we bring novel insights into the ways of mitigating the negative effect of a corporate scandal with organizational slacks.

Effects of Shariah-compliant business practices on long-term financial performance

We examine the long-term effects of Shariah-compliant business practices on the financial performance of the practicing firms. Shariah is the set of personal and societal behaviors derived from study of the Qur’an, the Islamic holy book. A firm is considered Shariah-compliant when it is part of a religiously approved industry sector and meets five quantitative screens. The first three screens measure each firm’s liquidity, the fourth examines each firm’s leverage, and the final screen, as part of the “purification process,” determines if the company’s reliance upon interest-based income is at an acceptable level. We use long-term event study methodology to examine the effects of compliance over five years. We develop and test two hypotheses to determine if Shariah-compliance enhances the long-term value of the firm. Using a large sample selected from 1990 to 2018, we find that Shariah-compliance positively affects long-term financial performance as evidenced by increased values in return on assets (ROA) and return on sales (ROS). However, the practice of Shariah-compliant investing offers mixed results for stock return performance. Our results show adherence to the five quantitative Shariah screening rules could be considered as a successful long-term managerial strategy, having positive implications even for firms not in Shariah-approved industry sectors.

Long-Term Event Study on Earnings Surprises and Practical Portfolio Construction

This study investigates the effect of quarterly earnings announcements for a large sample of US-listed companies in recent years (2008-2016). The research design involves regressions of total returns and residual returns on surprises, size, growth, accounting accruals, volume and announcement timing. Meanwhile, this study incorporates the effect of size and growth on the impact of earnings surprises into consideration. My results show the earnings and accounting accruals can be exploited to build an implementable portfolio, which has the annual return of 50.03% after hedging the beta, size, and growth.

Long-term event study of timber real estate investment trust conversions

The long-term financial performance of four timber real estate investment trust (REIT) conversions in the United States is evaluated by an event study with one-, two-, and three-year event windows. Three types of benchmarks are used in gauging the abnormal returns. The first benchmark is a portfolio of firms that are closest in size and book-to-market ratio to the timber REITs, the second is a portfolio of pre-conversion timber firms, and the third is an equal-weighted timber exchange traded fund (ETF) comprised of selected forest firms. Four approaches are used to calculate abnormal returns. Buy-and-hold abnormal returns and cumulative abnormal returns measure the preliminary abnormal returns, zero-investment portfolio approach with rolling regression evaluates the market-based risk premiums, and panel data analyses capture the relative advantages of REITs over their competitors within the timber industry. On average, annualized abnormal returns of 0.5% and 8.9% are identified before and after the REIT conversions. There is no difference between variances of pre- and post-event annualized abnormal returns. Therefore, structural changes have added values to the timber firms in the long run.

The Impact of Acquisitions Deals Announcement According to Financing Decisions on Value of Listed Acquiring Companies at Egyptian Stock Exchange

This study investigated the impact of short and long term acquisition deals announcement according to financing decisions on value of listed acquiring companies at Egyptian Stock Exchange. Short-term and long-term study methodology was applied to analyze average abnormal returns and cumulative average abnormal returns for a sample of acquiring companies held in the Egyptian stock exchange. Long-term event study methodology is applied according to annually buy-hold abnormal return method (ABHAR). Average abnormal returns and cumulative average abnormal returns were calculated to evaluate the acquirer's return for a sample of 31 acquiring companies listed and traded at Egyptian stock exchange during the period 2005-2014. The Sample is selected from 212 acquiring companies which completed the acquisition during the period. Paired T-test, Mann Whitney and ETA measurements were used to determine whether there was significant difference between the means in pre/post events. The results indicate that acquisitions did not generate cumulative average abnormal returns (CAAR) during the event window of 40 days (-20,+20) for the entire sample, but the acquisitions generated 26.67% (statistically significant) cumulative average abnormal returns during long-term event period. The Positive abnormal returns were not observed in the case of acquisitions financed with cash, stock or mix during the 40 days event window (short-term), but on long-term where the acquisitions were financed with cash and stock positive abnormal returns are generated and were not observed in the case of acquisitions financed with mix method.

Inwestycje a wyniki finansowe przedsiębiorstw w okresie kryzysu

The article investigates how investments made during the pre-crisis period from 2005 to 2007 influenced the financial performance of listed firms in Poland during the crisis. Using long-term event study methodology, we established that the investments had a negative impact on operational performance as the cost effects of investment were stronger than the effects of modernising the production process. However, there were industry-specific exceptions to this rule.

Methods of Payment in M&A Transactions and Operational Performance of Acquirers

The main purpose of this article is to verify if economic results of mergers and acquisitions on the Polish and Eastern European markets paid with cash outperform those financed with stocks. We applied a long-term event study methodology to identify the impact of M&A transaction on acquirer financial performance and cross-section regressions to test our main hypothesis. The conducted research shows that cash payments lead to statistically significant higher average ROA in the post-transaction period, while shares or mixed payments lead to a lower return on assets. Our findings prove that financing of M&A transaction on the Polish and East-ern European markets impact the operational performance of acquirers in line with signaling theory.

"Organizational misconduct, spillover, reputation damage and repair across alliance networks"

This paper explores the factors that shape the extent to which organizational disapproval and repair attempts impact spillover to firms within an alliance network. Using a long-term event study and random effects GLS model, we find that that social factors such as the pre-event visibility of the alliance, the tenor of post-event media coverage, and post-event repair attempts by the focal firm all strongly influence the speed of transmission and persistence of disapproval among alliance partners. We test our arguments using a sample of 229 allied firms using an event study methodology and random effects GLS regression.

Corporate Governance Scores and Long Term Performance

In this paper, we investigate a neglected aspect of corporate governance impact on firm performance: the revisions in corporate governance scores. Using a dataset of corporate governance scores from 1999 to 2009 on European firms in a long-term event study analysis, we establish four findings. First, country characteristics play an important role in the explanation of corporate governance scores. Second, high scores of governance are positively and significantly associated with subsequent abnormal returns over medium-term horizons. Third, country characteristics do not play a role in the explanation of revisions in corporate governance scores. Finally, upward revisions in corporate governance scores have a positive and robust association with subsequent abnormal returns in both short-term and medium-term horizons. Thus, the investors’ underreaction to revisions in governance scores could be an effective investment strategy. Long-short strategies based on revisions – buying stocks with upward revisions and selling stocks with downward revisions – yield positive and significant abnormal returns over medium-term horizons. These empirical evidences suggest that investors must consider not only the governance scores but also the scores revisions when building equity portfolios.

The Impact of Political Connections on Firms' Operation Performance and Financing Decisions

We investigate the impact that the political connections of publicly traded firms have on their performance and financing decisions. Using a long-term event study covering a sample of 234 politically connected firms headquartered in 12 developed and 11 developing countries over the period 1989 to 2003, we find that firms increase their performance and indebtedness after the establishment of a political connection. We also find that the political connection is more strongly associated with changes in leverage and operating performance for firms with closer ties to political power. Overall, our study confirms that politically connected firms gain easier access to credit and reap benefits in terms of performance from their ties with politicians.

The advantages of using quarterly returns for long-term event studies

The main purpose of this paper is to explore the low power and methodological problems as they continue to plague long-term event study research. We investigate long-term tests (up to 2 years) performed on non-overlapping quarterly time frames as a solution. Components of commonly employed characteristic-based matching processes are examined as the source of low power. Single “best” matching firms don’t statistically match their event firms at the time of the event and are vastly inferior to matching with portfolios. A modified market mean method which uses the securities continuously traded during the calendar event period, is shown to be well specified, have comparable power and avoid the costs of more complex matching methodologies. Contrary to popular perception, increased power derives from the decreased variance in comparison returns; not from an increased covariance between comparison firm returns and event firm returns. The tests are easy to implement, well-specified and have higher power when based on quarterly versus monthly data.

Open-market purchases of public equity by private equity investors: Size and home-bias effects

This paper analyses 689 open-market purchases of public equity by private equity investors (PEIs) between 1999 and 2008. On average, we find a positive market reaction to the public announcement of such purchases in both the short and long term. Based on the long-term event study approach of Mitchell and Stafford (2000), we also found that a portfolio of stocks bought by private equity investors achieves a yearly alpha of between 8.5% and 13.5%. In general, the short-term alphas and the long-term alphas are more pronounced when private equity investors buy a listed stock of their home country than when they invest abroad. This justifies a home bias in private equity investments. We also found that investment in small capitalized stocks produces higher excess returns than an investment in large stocks. The abnormal returns are lower for longer time periods, but they are significant in the short-term and over a 1-year horizon. Thus, we find evidence for a size effect in private equity investments.

Can Firms Learn to Acquire? The Impact of Post-Acquisition Decisions and Learning on Long-Term Abnormal Returns

The objective of this paper is to study empirically how post-acquisition decisions and learning from previous acquisition experience affect the long-term performance of acquiring firm. Using financial, accounting and questionnaire response data, we investigate the post-acquisition long-term performance of 47 US bank holding companies that executed 320 acquisitions in the 1986-1995 period and compare it with their competitors' performance. Applying a long-term event study methodology, we regress measures of abnormal financial performance on a set of explanatory variables, which include measures of post-acquisition decisions, such as the degree of integration of the target within the acquirer's structure and the replacement of the top management team, as well as approximations of the acquirer's capability to implement the integration process. We find that prior acquisition experience per se does not improve post-acquisition performance, but the degree to which acquirers articulate and codify their experience in ad-hoc tools significantly affects long-term performance. Furthermore, a high level of integration of the target within the acquirer's organization improves long-term performance, whereas the replacement of top management worsens it. Also, increasing levels of integration enhance the positive impact of knowledge codification processes. Finally, experiential and deliberate learning are substitutive mechanisms for learning, rather than complements.

Long-Run Abnormal Stock Performance: Some Additional Evidence

In this research we study the specification and the power of classic test statistics used in long-term event studies analysis. Using simulations in random samples, we show that test statistics based on an arbitrary benchmark are well specified and as powerful as the ones based on the size and book-to-market benchmark. However, when conditioning the samples on past stock returns performance, we show that a good matching procedure is required in order to obtain well specified and powerful tests. Finally, we examine the specification and the power of calendar-time portfolios. The crosssectional standardized t-stat is well specified in random samples in which the frequency of the events is random or depends on the past market returns performance. However, when the frequency of events is conditioned on past market returns performance and the stocks are selected among the most extreme returns misspecified test statistics are obtained.

Post-IPO capital expenditures and market feedback

This paper presents an empirical test of the ‘market feedback hypothesis’, a theory suggesting that information aggregated in the IPO process is used for the firm’s investment decision. We examine the relation between post-IPO unexpected capital expenditures and feedback generated during the IPO process for 1543 IPOs between 1987 and 1995. Feedback is measured by (i) the unexpected price adjustment made at the end of the waiting period and (ii) the unexpected initial return. Consistent with the hypothesis, we find that positive feedback is followed by positive abnormal capital expenditures. A long-term event study finds no significant difference in stock returns between positive and negative feedback IPOs. This suggests that firms should not ignore market feedback as there is no evidence for a feedback related bias in post-IPO stock prices.