Long-term Stock Performance Research Articles

Brain activity of professional investors signals future stock performance

A major aspiration of investors is to better forecast stock performance. Interestingly, emerging "neuroforecasting" research suggests that brain activity associated with anticipatory reward relates to market behavior and population-wide preferences, including stock price dynamics. In this study, we extend these findings to professional investors processing comprehensive real-world information on stock investment options while making predictions of long-term stock performance. Using functional MRI, we sampled investors' neural responses to investment cases and assessed whether these responses relate to future performance on the stock market. We found that our sample of investors could not successfully predict future market performance of the investment cases, confirming that stated preferences do not predict the market. Stock metrics of the investment cases were not predictive of future stock performance either. However, as investors processed case information, nucleus accumbens (NAcc) activity was higher for investment cases that ended up overperforming in the market. These findings remained robust, even when controlling for stock metrics and investors' predictions made in the scanner. Cross-validated prediction analysis indicated that NAcc activity could significantly predict future stock performance out-of-sample above chance. Our findings resonate with recent neuroforecasting studies and suggest that brain activity of professional investors may help in forecasting future stock performance.

Time Series Analysis of Long-Term Stock Performance of Airlines: The Case of Turkish Airlines

This study presents a time series analysis of the long-term stock performance of airlines, with a focus on Turkish Airlines (THY). Stock-related variables were obtained from the Istanbul Stock Exchange, and other variables were obtained from the Turkish Statistical Institute. The research investigates various economic factors that may influence THY's stock prices over an extended period. Specifically, the study examines the relationship between global energy prices, inflation, the BIST100 index, gold prices, exchange rates, and THY stock prices. The analysis employs the Autoregressive Distributed Lag (ARDL) approach, a versatile technique capable of estimating both short-term and long-term relationships between variables. The findings of this research reveal significant and statistically meaningful connections between these economic variables and THY's stock prices. Notably, the study highlights the impact of global energy prices and other economic factors on the long-term stock performance of Turkish Airlines. These results provide valuable insights for investors and analysts seeking to understand and forecast THY's stock price movements.

Does annual report readability influence the design of SEOs?

Motivated by the rapid growth in non-quantitative corporate disclosure and seasoned equity offerings (SEOs) in the U.S., we take a fresh look at the decision-making process behind accelerated offerings in SEOs, with a specific emphasis on the readability of annual reports within 10-K filings. In particular, our study explores whether readability of annual reports affects the choice of SEOs methods. Using a hand-collected sample of 3143 instances of seasoned equity issues between 2002 and 2021, we show a significantly positive relation between readability scores and accelerated offerings. These results hold across various robustness tests. We further reveal a negative relationship between abnormal operating performance and long-term stock performance following the announcements of SEOs, demonstrating that: firstly, SEOs provide valuable insights into future earnings; and secondly, these insights have a lasting impact on stock performance. Overall, our evidence strongly highlights the substantial influence of annual report readability on the design of SEOs, emphasizing the critical importance of conveying financial information concisely and effectively to the market.

감사인지정제도가 KOSDAQ IPO 시장의 효율성에 미치는 효과

Purpose - The purpose of this study is to empirically investigate whether the auditor accreditation system for IPO firms improves the efficiency of the KOSDAQ IPO market. To verify the effectiveness of the auditor designation system, we time series compare four measures of IPO firms (earnings management, long-term stock performance, change in operating performance, and possibility of delisting).
 Design/methodology/approach - We test the hypothesis through event research method and regression analysis. Specifically, the dependent variables of the regression model are discretionary accruals in the year of IPO, 36-month holding period excess return after IPO, change in operating performance for 3 years after IPO, and dummy variable for delisting. And the explanatory variable is a dummy variable that separates the period before and after the implementation of the auditor designation system.
 Findings - We find that earnings management and delisting risks decreased more in the period after the implementation of the auditor accreditation system than in the previous period. In addition, we find that long-term stock performance and operating performance after IPO increase further after the implementation of the auditor accreditation system.
 Research implications or Originality - Overall, the results of this study suggest that the implementation of the auditor accreditation system for IPO firms contributes to improving market efficiency in the KOSDAQ market, where information asymmetry is high. Our study differs from previous studies in that it demonstrates the effectiveness of the auditor designation system using various measures.

Private Placement, Investor Sentiment, and Stock Price Anomaly

The private placement of A-shares gained momentum with the release of the Administrative Measures for Securities Issuance of Listed Companies in 2006. This led to enhanced research on the impact of private placement on stock prices. In 2012, the Chinese government relaxed the requirements for directed issuance of listed companies, resulting in a surge of directed issuance since then. This study uses a sample of listed companies that conducted private placements in the A-share market between 2013 and 2021, to analyze the impact of investor sentiment on stock price differences after private placements from the perspective of short and long-term excess returns. This study constructs the non-main investor sentiment of individual stocks using high-frequency tick data of individual stocks and explores the relationship between this stock price anomaly and investor sentiment using multiple regression analysis. The results show a positive short-term announcement effect of A-share private placements, with the excess return rate occurring mainly before the plan announcement date. The stock price difference from the plan announcement date to ten trading days thereafter has a significantly negative relationship with the excess return rate. Furthermore, investor sentiment in private placements may negatively affect long-term stock performance. This study suggests that this phenomenon is caused by higher investor sentiment pushing stock prices upward in the short term, causing them to deviate from fundamentals, creating mispricing, and then driving them back to fundamentals, with information disclosure. After controlling for the severity of information disclosure, the effect of investor sentiment on long-term stock price performance becomes insignificant.

주식분할 공시에 대한 장·단기 효과

Purpose - The purpose of this study is to re-examine the disclosure effect of stock splits and long-term performance after stock splits using stock split data over the past 10 years, and infer the motivation (signal or opportunism) of stock splits. In addition, we focus on exploring the determinants of the short- and long-term market response to stock splits.
 Design/methodology/approach - We measure the short-term market response to a stock split and the long-term stock performance after the stock split announcement using the event study method. We analyze whether there is a difference in the long-term and short-term market response to a stock split according to various company characteristics through univariate analysis and regression analysis.
 Findings - In the case of the entire sample, a statistically significant positive excess return is observed on the stock split announcement date, and the excess return during the 24-month holding period after the stock split do not show a difference from zero. In particular, the difference between short-term and long-term returns on stock splits is larger in companies with a large stock split ratio, small companies, large growth potential, and companies with a combination of financial events after a stock split.
 Research implications or Originality - The results of this study suggest that at least the signal hypothesis for a stock split does not hold in the Korean stock market. On the other hand, it suggests that there is a possibility that a stock split can be abused by the manager's opportunistic motive, and that this opportunism can be discriminated depending on the size of the stock split, corporate characteristics, and financing plan.

Determinants of Long-Term Performance of Initial Public Offering: Evidence from Indonesia Stock Exchange

Introduction: Companies conducting initial public offerings have two main anomalies in stock exchanges around the world, namely underpricing (short-term performance) and poor long-term performance (poor long-run term performance). One of the factors that can provide information on the performance of an initial public offering company is the initiation of dividends, the age of the company, and the reputation of the underwriter. The purpose of this study is to analyze the long-term performance of Indonesian IPOs made during the period from 2012 to 2018. Method: This type of research is quantitative research, and the type of data used is secondary data. The population in this study are all initial public offering companies listed from 2012 to 2018. The sampling technique is non-probability sampling. The data analysis technique used SPSS 24. Result: IPO companies that experienced a positive initial return of 78% consisting of 139 companies, this was an advantage for investors while underpricing for the company while experiencing a negative initial return of 22% consisting of 40 companies. The initiation dividend has a coefficient (B) of -0.023 and a significant value of 0.349, indicating that the initiation dividend has a negative and insignificant effect on the long-term stock performance of IPO companies. The variable age of the company has a coefficient value (B) of 0.001 with a significance value of 0.049 which means that the age of the company has a positive and significant effect on buy and hold abnormal returns. The results of testing the influence of underwriter reputation1, underwriter reputation2, underwriter3 reputation, and underwriter reputation4 have no significant effect on the long-term stock performance of IPO companies. Conclusion: In general, the results of the long-term performance of IPOs in Indonesia from 2012 to 2018 during the three years after the IPO found negative abnormal results.

Determinants of Long-Term Performance of Initial Public Offering: Evidence from Indonesia Stock Exchange

Introduction: Companies conducting initial public offerings have two main anomalies in stock exchanges around the world, namely underpricing (short-term performance) and poor long-term performance (poor long-run term performance). One of the factors that can provide information on the performance of an initial public offering company is the initiation of dividends, the age of the company, and the reputation of the underwriter. The purpose of this study is to analyze the long-term performance of Indonesian IPOs made during the period from 2012 to 2018. Method: This type of research is quantitative research, and the type of data used is secondary data. The population in this study are all initial public offering companies listed from 2012 to 2018. The sampling technique is non-probability sampling. The data analysis technique used SPSS 24. Result: IPO companies that experienced a positive initial return of 78% consisting of 139 companies, this was an advantage for investors while underpricing for the company while experiencing a negative initial return of 22% consisting of 40 companies. The initiation dividend has a coefficient (B) of -0.023 and a significant value of 0.349, indicating that the initiation dividend has a negative and insignificant effect on the long-term stock performance of IPO companies. The variable age of the company has a coefficient value (B) of 0.001 with a significance value of 0.049 which means that the age of the company has a positive and significant effect on buy and hold abnormal returns. The results of testing the influence of underwriter reputation1, underwriter reputation2, underwriter3 reputation, and underwriter reputation4 have no significant effect on the long-term stock performance of IPO companies. Conclusion: In general, the results of the long-term performance of IPOs in Indonesia from 2012 to 2018 during the three years after the IPO found negative abnormal results.

Floating Rate Notes in High Rate Environment and the Stock Market Response

Previous study finds that the firms with inferior growth options tend to issue callable bonds. Typically, these firms are characterized by stock underperformance. Previous study also finds that the floating rate as a superior alternative to the call provision, which is restrictive, when the interest rates are likely to fall. We study the long-term stock performance of floating rate notes (FRNs) issuing firms, issued when the interest rates are high. Stock overperformance would suggest floating rate as a preferred choice by the firms with high growth options rather the call option. We find that the FRNs are generally investment grade with extremely rare presence of a call option. We perform the analysis using Buy and hold abnormal return (BHAR) as the proxy for the long-term stock overperformance/underperformance. A sample of floating rate notes issued (1654) from 1992 to 2007, a period of high interest rates, reveals significant overperformance by the floating rate notes issuing firms in the high-rate paradigm. High growth firms, in the high-rate environment, significantly benefit from the floating rate provision which is less restrictive and less costly than the call option, which typically provides call protection period and pays a call premium. Floating rate provision better mitigates the interest rate risk for the firms in the high-rate environment. We find that the smaller, high growth, higher leverage, less profitable firms with greater agency issues benefit more from issuing FRNs in the high-rate environment. Our study has relevance to the stock portfolio construction and performance. We also perform a comparative analysis using the sample of floating rate notes issued (270) during 2008 to 2018, a period of low interest rates, and find stock underperformance. The implications are that the call option likely is a better choice for the firm since the firm preserves the right to forego exercising the option.

FACTORS AFFECTING ABNORMAL STOCK RETURNS ON LONG-TERM PERFORMANCE OF INITIAL PUBLIC OFFERING (IPO) (A Literature Review)

The average stocks return of the initial public offering (IPO) in the US stock market was - 29.13% at the end of the third year after the IPO (Ritter, 1991). The conclusion is that the Underperformed phenomenon is influenced by the volume of trade and only occurs in the non-financial sector (Ritter, 1991). Underperformed is a stock return of initial public offerings that have lower performance compared to the market return. Bessler and Thies (2007) stated that the year of going public is the time period of the initial public offering (IPO). There is a time variation in the pattern of benefits, it raises a question of whether companies can maximize the value and amount of funds acquired. In investing, investors consider the return and risk, the expected results of the investment will be realized after a certain period of time and during this period there is a risk of the investments made. The aim of this study is to analyze the factors that affect Abnormal Return on long-term stock performance after 36 months of the IPO. The independent variables in this study consist of Benchmark, Money Raised, Market Value, and Magnitude of Underpricing. The dependent variable is the abnormal return on long-term stock performance after 36 months of the IPO. The samples used in this study were the non-financial companies on 2010-2020 period as many as 54 non-financial companies using purposive sampling method. The analysis technique used was multiple linear regression analysis and performed classical assumption test which includes normality test, multicollinearity test, autocorrelation test, and heteroscedasticity test.

Consequences of fraud and overcoming negative market reaction

We examine the market reaction to a sample of firms following the announcement of the firms' involvement in fraud, referred to as the trigger event. We find that these firms experience negative and significant returns following the announcement of fraud, in contrast to a control sample. More importantly, we examine tactics, such as changes in executives, auditing firm, and company name, that these firms may use to regain the market's confidence. We find that the market reacts negatively right after the change in executives, but the negative trend is reversed in the long-term for firms that make an executive change quickly after the trigger event. Similarly, firms that quickly change their auditing firm fare better. We also find that there is significantly more information asymmetry during the trigger event and at the litigation date, as well as during changes in CEO, CFO, and auditor. We find a prompt change in CFO is positively and significantly related to, and therefore predicts, better long-term stock performance.

How Does the Stock Market Value Female Directors? International Evidence

We analyze investors’ perception and long-term effects of board gender diversity on firms’ stock market performance in an international setting. Our results, controlling for the endogenous nature of board compositions, indicate that female board representation neither improves nor reduces firms’ long-term stock performance. Hence, we argue that it is imperative to go beyond the conventional thinking in terms of the business case for gender diversity and broaden the perspective also to incorporate societal and ethical aspects in the strive to board gender equality. Even more so, as our results show that it does not entail reduced shareholder value, which the literature on mandatory gender quotas commonly seems to suggest.

Long-term financial performance of corporate social responsibility

We conduct an empirical investigation of the relationship between corporate social responsibility (CSR) and long-term stock performance in Japan. This study is set in the Japanese context. We find, first, that CSR activities are positively related to long-term stock returns. Second, shareholders and financial institutions that have long-term investments with strong governance promote CSR activities. Third, discussion with stakeholders, such as loyal well-socialized consumers in developed countries, supports firms' CSR activities, especially environmental issues in Europe and governance in North America. Finally, short-term CSR investment does not yield good stock performance. By applying robust methodology to over 10 years of data, our study supports the hypothesis that investors in the Japanese market are significantly concerned about the social activities of firms, and that these concerns are reflected in the markets. This study provides quantitative evidence of the positive effect that CSR has on long-term stock investments in the Japanese market. In addition, it concludes that CSR has the potential to be a tool to moderate myopic short-termism.

A Study of “Fossil Free” Equity Portfolio Performance

A growing number of institutions now consider fossil free investing, a portfolio strategy that seeks to minimize exposure to companies that are sources of current and future carbon emissions, such as coal, oil, and natural gas companies. The strategy is a subset of the broader social responsibility investment movement, which seeks to balance environmental, social, and governance (ESG) factors alongside traditional financial analysis. Before implementing a fossil free strategy, institutions may want to know the historical impact of eliminating carbon-oriented stocks from a conventional equity portfolio. We compare the two investment strategies over the period from 2004 to 2017 and find that going fossil free causes no undue harm to the investor. The fossil free portfolio performs worse than the conventional equity portfolio in the early years, but the trend reverses in the later years. The long-term stock performance of Carbon Underground 200 firms also shows that firms added to the list in the later years experience significantly negative abnormal returns for the three years subsequent to the month of addition. TOPICS:Portfolio theory, portfolio construction Key Findings • Over the 13 years, 2004–2017, a fossil free portfolio had similar annualized returns and volatility, compared to a conventional equity portfolio. • Divided into two sub-periods, the fossil free portfolio did worse in the earlier years, but reversed this trend in later years. • The performance of carbon-heavy stocks changed over time. Such stocks performed worse in the later years than in the early years. This differential perhaps reflected institutional investors’ increased adoption of socially responsible investment tactics over time.

Board Gender Diversity and its Effects on Capital Markets: New International Evidence

We analyze investors’ perception and long-term effects of board gender diversity on firms’ stock market performance in an international setting. Our results, controlling for the endogenous nature of board compositions, indicate that female board representation neither improves nor reduces firms’ long-term stock performance. Hence, we argue that it is imperative to go beyond the conventional thinking in terms of the business case for gender diversity and broaden the perspective also in order to incorporate societal and ethical aspects in the strive to board gender equality. Even more so, as our results show that it does not entail reduced shareholder value, which the literature on mandatory gender quotas commonly seems to suggest.

New product strategies and firm performance: CEO optimism

We examine the role of CEO optimism in explaining firm performance associated with new product introductions. New product introducing firms with high levels of CEO optimism experience better announcement-period abnormal returns and long-term stock performance than introducers with moderate or low levels of CEO optimism. Changes in abnormal operating performance following new product announcements are also more favorable for firms with high-optimism CEOs than for firms with moderate-optimism or low-optimism CEOs. The results hold after controlling for other potential explanatory factors and accounting for endogeneity. The evidence highlights the importance of CEO optimism in assessing the valuation effect of corporate product strategies.

Competitors’ stock price reactions in response to private equity placements: evidence from a transitional economy

This paper examines whether information conveyed by private equity placement decisions transfers to non-applying companies within the same industry. In particular, it investigates the impact of a company’s announcements of the application for, withdrawal, rejection, approval and completion of private equity placement, while examining the cross-sectional differences of the market performance of their industry counterparts, both in the short- and long-term. It was found that an intra-industry reaction exists; competitors experience a decrease in stock prices in response to the announcement of the application for, approval and completion of private equity placement and an increase in stock prices around the announcement of the withdrawal or rejection of applications. Further, it was found that competitors experience a decrease in their long-term stock performance following private placements. A higher discount on private equity placement is detrimental for private equity (P.E.) issuing companies in the long-term. This study, therefore, provides evidence of the existence of a contagion effect in the long-term while a competitive effect dominates in the short-term.

The impact of investor impatience and environmental turbulence on myopic marketing management and stock performance

We show that managers are less likely to myopically manage marketing spending in response to short-termism pressure from institutional investors when market turbulence is high. In addition, managers are less likely to myopically manage R&D spending in response to such investors' pressure in technologically turbulent environment. Furthermore, we find that long-term stock performance suffers with myopic marketing management and that (a) the total financial impact to myopic management of marketing spending worsens as market turbulence increases and (b) the total financial impact to myopic cuts in R&D spending worsens as technological turbulence increases. Our results also show that myopic marketing management is rewarded by positive short-term stock performance. However, the stock market discounts the performance when it senses instances of myopic marketing management.

The Information Effect of Discretionary R&D Investment on Accounting-based Valuation and Long Term Stock Returns: Signaling vs Managerial Over-optimism

This paper aims to investigate the impact of discretionary R&D expenditure (R&D expenditure higher than market expectation) on the value relevance of the accounting information at the earnings announcement date and long-term stock performance after earnings announcement. Qian et al.(2012) argue that the positive discretionary R&D may be due either to signaling motivation or just an inefficient investment made by overconfident and overoptimistic managers. We analyze the information content of discretionary R&D expenditure particularly in high-tech industries where information asymmetry is high to see if it is a manager`s signal or managerial over-optimism in the form of overinvestment in Korean market. In order to do so, we investigate the relationship with market response using two different methods. First, we investigate the association between discretionary R&D and value relevance of accounting information at the time of announcement of annual financial statements. And we find that the firms with positive discretionary R&D decrease (increase) the risk of pricing error (value relevance) by the accounting-based pricing model. Second, we verify whether a difference in discretionary R&D expenditure leads to the difference in long-term abnormal stock returns after the announcement of financial statements. Our analysis indicates that there is a positive and significant association between discretionary R&D and long term abnormal returns in high-tech firms. This result implies that the Korean market construes the positive R&D spending as a signal of investment prospects in high-tech firms. However, further analysis reveals that the signaling effect of discretionary R&D in high-tech firms has diminished as the level of insider ownership increases.

Personnel is Policy: Labor Investment Efficiency and Firm Value

Labor is an essential factor of production. Like many other emerging markets, Korean economy has been developed with heavy reliance on labor over the past few decades, and therefore efficient investment in labor has been of primary interest to Korean companies. We investigate whether and to what extent the labor investment efficiency contributes to firm value in Korea. Following prior studies, we construct an empirical proxy for labor investment efficiency - abnormal changes in the number of employees which deviates from the fitted value based on firm fundamentals. We then find that more deviation from the optimal labor investment is related to lower future operating performance and higher external financing costs (i.e., required rates of returns). We further document that long-term stock performance decreases as the deviation from the optimal labor investment increases. Our results remain unchanged with a battery of robustness checks such as controlling for capital investment efficiency, addressing endogeneity concerns, or using alternative measures of labor investment efficiency. In sum, our results collectively indicate that investment efficiency in human resources indeed significant contributes to firm value.