Lower Stock Price Research Articles

Does corporate eco-innovation affect stock price crash risk?

We examine the effect of corporate environmental innovation (hereafter eco-innovation) on stock price crash risk and document a significant negative association. Utilising a large sample of publicly listed U.S. firms for the period 2003 to 2017, we find that an increase in eco-innovation from the 25th to the 75th percentile is associated with 17.62% reduction in stock price crash risk. This outcome remains robust to a variety of sensitivity tests and after accounting for potential endogeneity concerns. Eco-innovative firms attract more institutional investors and equity analyst following and disclose more information leading to lower stock price crash risk. Additional tests reveal that the negative effect of eco-innovation is contingent on the political leadership's ideology and environmental sensitivity. Our paper contributes to the ongoing discourse on the costs and benefits of eco-innovation, documenting the value-enhancing perspective of eco-innovation.

Tarred with the Same Brush? Advertising Share of Voice and Stock Price Synchronicity

Using the informative view of advertising as their theoretical lens, the authors propose that advertising provides information to investors in financial markets, analogous to its role for customers in product markets. The authors extend previous marketing–finance research, which has focused on how advertising affects firms’ risk and returns, and investigate a novel outcome variable, stock price synchronicity. Consistent with their proposed theory, the authors find that firms that advertise more relative to competitors have lower stock price synchronicity, implying that these firms’ stock price movements are driven more by information that is specific to the firm rather than general industry- and market-wide trends. The effect of advertising investments on stock price synchronicity is moderated by the information demand versus supply about firms in financial markets given firms’ product characteristics and ownership structure, and the likelihood of spillover effects between product and financial markets given firms’ marketing strategies. The authors illustrate the relevance of their findings for marketing managers through an event study in which they demonstrate that firms with high stock price synchronicity are “tarred with the same brush” and experience negative abnormal returns when competitors have a product recall, whereas firms with low stock price synchronicity are not affected.

THE VALUE OF BEING LUCKY: OPTION BACKDATING AND NONDIVERSIFIABLE RISK

The practice of executives influencing their option compensation by setting a grant date retrospectively is known as backdating. Since executive stock options are usually granted at-the-money, selecting an advantageous grant date to coincide with a low stock price will be valuable to an executive. Empirical evidence shows that backdating of executive stock option grants was prevalent, particularly at firms with highly volatile stock prices. Executives who have the opportunity to backdate should take this into account in their valuation. We quantify the value to a risk averse executive of a lucky option grant with strike chosen to coincide with the lowest stock price of the month. We show the ex ante gain to risk averse executives from the ability to backdate increases with both risk aversion and with volatility, and is significant in magnitude. Our model involves valuing the embedded partial American lookback option in a utility indifference setting with key features of risk aversion, inability to diversify and early exercise.

Forecasting the prominent, fluctuating and declining stock prices using a numerical approach

Stocks and shares play a major role in the economic and financial scenario of a country. When there is a change in the usual economic situation due to any unplanned events or circumstances, the changes in stocks becomes the most prevailing topic. The financial crisis is a major issue that adversely affects most nations. The stock market is a major part of an economy, and when that faces a financial crisis it may lead to a rapid fall in business. Hence, the topic is always an interest of study for the businessmen and academicians across the globe. At present, the stock markets are adversely affected due to the pandemic situation. In this scenario, any type of prediction is helpful. So, we have considered the method of forecasting, which is a powerful tool in estimating future values. This helps investors to overcome significant capital losses. In this paper, we discuss the extrapolation method using mathematical software. It is used to forecast high and low stock prices for upcoming months from the data collected from nseindia.com. Stock market analysis helps the investors to identify the worth of a stock before investing it

Bias in the effective bid-ask spread

The effective bid-ask spread measured relative to the spread midpoint overstates the true effective bid-ask spread in markets with discrete prices and elastic liquidity demand. The average bias is 13%–18% for S&P 500 stocks in general, depending on the estimator used as benchmark, and up to 97% for low-priced stocks. Cross-sectional bias variation across stocks, trading venues, and investor groups can influence research inference. The use of the midpoint also undermines liquidity timing and trading performance evaluations, and can lead non-sophisticated investors to overpay for liquidity. To overcome these problems, the paper proposes new estimators of the effective bid-ask spread.

The role of angel investment for technology-based SMEs: Evidence from China

This paper comprises an empirical study on the role of angel investment in the Chinese IPO market. Using a novel dataset on 743 deals of 404 angel-backed firms from 2002 to 2013 and tracing the firms' growth history to 2017, we found that angel investment is institutionalized in the Chinese market. Based on this current situation, we develop an innovative angel investment resource factor and show that an abundance of angel resources can reduce short-term information asymmetry and generate a positive but lagging effect on SMEs' long-term performance. Furthermore, we find that these angel-backed firms have a lower stock price crash risk after IPOs, which also explains the time-lag effect of angel investment on their market performance in the early stage of IPOs. Our results are resistant to several endogeneity tests and provide insights into the multifaceted contributions to the aftermarket performance and survival of technology-based SMEs and the sustainable development of angel institutions in emerging markets.

Banka Opaklığının Hisse Senedi Fiyat Gecikmesine Etkisi: BİST te İşlem Gören Bankalar Üzerine Bir Araştırma (The Effect of Bank Opacity on Stock Price Delay: A Research on Banks Traded on BIST)

Purpose – The purpose of this study is to determine the effects of opacity on the stock price delay in banks traded on BIST in the 2007-2019 period. Design/methodology/approach – This research uses the data of stock price, bid-ask spread, share turnover, market capitalization, book-to-market ratio, beta, idiosyncratic volatility, and also for opacity analysis it uses the data of investment securities, deposits, total assets, loans, long-term debt, shareholder equity, debt-to-equity ratio. The parameters of the panel regression model were estimated using the generalized least squares (GLS) estimator. Findings – According to the results, it was observed that the banks which have lower stock price, liquidity, beta; higher idiosyncratic volatility, firm value, non-mortgage loans, other opaque assets (derivative financial assets, fixed assets, intangible assets etc.), deposits, long-term debts, equity and total debt to equity ratio are more opaque, and opacity disrupts the price efficiency of stocks and increases the price delay. Discussion – While the price delay is expected to decrease as the stock turnover rate increases, it is seen in the analysis results that the price delay has increased. It is thought that in inefficient and shallow markets speculative transactions may occur, high volume values may not reflect real buyers-sellers, and the limited number of data in the study causes results contrary to expectations.

Do Individual Investors Prefer a Price Range in the Equity Markets?

This article focuses on a wealth-constrained individual investor preference for lower price ranges in the Indian secondary equity market, using stock-split data to gauge the effects of lower price ranges on individual ownership. The hypothesis is that individual investors operate within a price range of choice. The overall findings address three specific contributions. First, the impact of various post-split price (PSP) bands on both individual and institutional investors is assessed. Second, a specific PSP range is estimated that triggers a shift in ownership from institutional investors to individual investors. Third, the article shows the firm-specific characteristics for companies that target lower-priced stocks. <b>TOPICS:</b>Fundamental equity analysis, emerging markets <b>Key Findings</b> ▪ The lowest bands of post split price (PSP) have maximum positive impact on ownership of individual shareholders. ▪ The shift in ownership from institutional investors to individual investors happens at the lowest bands of post split price (PSP). ▪ Companies having lower price-to-book ratios and higher market capitalization target lower market prices (PSP) to attract individual shareholders post split.

Does managerial ability affect disclosure? Evidence from earnings press releases

PurposePrior research shows that managers with lower ability release less accurate management earnings forecasts and have more earnings restatements, lower earnings persistence and lower quality accruals estimations. Yet, whether the impact of managerial ability (MA) on financial reporting can be extended to the narrative section of firms' financial disclosures needs to be theoretically and empirically examined. The authors theorize in this paper that managers with low ability opportunistically inflate the tone to increase outsiders' perceptions of their ability. The authors also examine the relation between MA and the informativeness of tone to predict future firm performance and explain investors' reaction at earnings announcement.Design/methodology/approachThe authors collect 24,000 earnings press releases of 1,149 distinct firms between 2004 and 2013. Content analysis is used to proxy the tone of the disclosures. The authors use the score developed by Demerjian et al. (2012) to measure MA. The authors then employ panel data regressions to examine the impact of MA on disclosure tone.FindingsThe authors find that low-ability managers inflate the disclosure tone to positively influence labor market's perceptions about their ability. This effect is magnified for younger and shorter-tenured managers, for firms with more intense monitoring and during bear markets. The authors also find that the tone of earnings press releases of low-ability managers results in a lower stock price reaction. Supplementary analyses show that the results do not only hold for the tone, but also can be extended to other linguistic features such as the numerical intensity and the readability of earnings press releases. The results are robust to alternative library specifications and other corporate disclosures such as CEO letters to shareholders or 10-K filings.Research limitations/implicationsThe paper shows that managers worry about how firm performance influences the labor market assessment of their ability. In particular, the authors find that managers of low ability are willing to opportunistically manipulate the content of corporate disclosures to improve this perception and build their reputation.Originality/valueThe authors contribute by providing theoretical and empirical evidence on how managers attempt to steer assessments of their ability by manipulating corporate disclosures. Consistent with prior business research suggesting that one's ability is a key feature that affects managers' propensity to engage in ethical practices, such as tax avoidance or manipulation of financial information, this study shows that less able managers tend to inflate the tone of the earnings announcements and that this ability-driven bias is likely to be magnified by career concerns.

Using stock split to secure pledged shares: Evidence from Chinese listed firms

Controlling shareholders who face margin call pressure may initiate stock splits to prop up the stock price in order to secure the pledged shares. We find supporting evidence based on a sample of Chinese listed firms through 2008–2018 where share pledge is prevalent. The findings are robust to various robustness checks, and are stronger for non-SOEs where losing control right is indeed a concern. We further show that controlling shareholders consider investors’ demand for low-priced stocks when initiating stock split to protect pledged shares. Importantly, we propose a new measure for margin call pressure, Distance, which considers both the proportion of shares pledged and the distance between stock price and margin call trigger point. We find margin call pressure starts to impact stock split as Distance approaches 160%, a trigger level commonly-used in industry. Investors react less favorably to split announcement when controlling shareholders face high margin call pressure.

Stock price synchronicity, sustainability reports, and earnings quality

Stock Price Synchronicity is a calculation used to show the proportion of the company's internal and external information accumulated into the stock price. This study aims to examine internal information in the form of sustainability reports and earnings quality on stock price synchronicity. Furthermore, this study also aims to examine the moderating effect of institutional investors as an indicator of sophisticated investors. The population in this study is a go-public manufacturing company on the Indonesia Stock Exchange (BEI). The sample was determined by the purposive sampling method. This research uses multiple regression analysis methods with a panel data form. The results showed that companies with a higher quality of sustainability reports had lower stock price synchronicity and institutional investors did not have a moderating effect in this relationship. The results also show that companies that have higher earnings quality have high stock price synchronicity as well. This relationship changes when the institutional investor moderation variable is added. Companies with higher earnings quality have lower stock price synchronicity values.

Dynamic Asset Pricing with Interactions between Short-Sale and Borrowing Constraints

Abstract This paper studies the joint effect of borrowing and short-sale constraints under heterogeneous beliefs and risk aversions. Although the constraints never simultaneously bind in equilibrium, interesting economics emerge in the anticipatory effects of potentially future binding constraints. In particular, the risk-free rate and Sharpe ratio experience endogenous jumps at a critical state, where two equilibria coexist. Moreover, a short-sale ban can lead to a lower stock price and higher volatility depending on the relative tightness between the constraints, and tightening the borrowing constraint during a short-sale ban can also make returns more volatile. (JEL G11, G12)

Undervaluation and non‐financial information: Evidence from voluntary disclosure of CSR news

AbstractIn this paper, we examine whether stock market imperfection plays a role in a firm's decision to release non‐financial information and if so, what the underlying channels are. To address our questions, we web‐scraped corporate social responsibility (CSR) news to form a sample of publicly traded non‐financial US firms from CSRwire and explored exogeneous variation in stock valuation driven by institutional price pressure. Our empirical results show that firms facing stock market undervaluation are more likely than others to release CSR news. This effect is concentrated among firms exhibiting low levels of CSR commitment and low stock price informativeness. Finally, we provide evidence that the stock market reacts positively to CSR news released by undervalued firms and more so for undervalued firms with high information asymmetry.

Impact of COVID-19 on Performance Evaluation Large Market Capitalization Stocks and Open Innovation

This research is an event study that evaluates the performance of large market capitalization shares using a performance model that is adjusted to risks due to the COVID-19 outbreak. The study measured the performance of large market capitalization stocks which represented each tick size on the Indonesian Stock Exchange during the COVID-19 pandemic using the Sharpe Index, the Treynor Ratio, and Jensen’s Alpha. The sample selection used a purposive sampling technique and 24 stocks were selected as samples in the study. We used the daily closing price of stocks, the Indonesia composite index, and average risk-free rate return (BI rate). By using Jensen’s Alpha, this study found that FREN was the highest beta with a value of 1.8189, indicating that the index was an effective and well-diversified stock. FREN is low priced and the highest market capitalization stock in its tick size (third tier stocks). Jensen’s Alpha is good for measuring the performance of large capitalization and low-priced stocks. There are eight stocks that always have negative values in each method of measuring stock performance, which indicates that these stocks underperformed during COVID-19.

Does social trust mitigate insiders’ opportunistic behavior? Evidence from insider trading

We investigate whether social trust can mitigate insider trading profitability. Our empirical evidence shows that social trust surrounding corporations’ headquarters is negatively associated with corporate insiders’ ability for trading gains. This relation holds in a range of tests including instrumental variable methods and using social trust value from CEO’s birthplace. We further find that social trust plays a more important role in curbing insiders’ trading profitability when firms have a higher level of information asymmetry, poorer corporate governance, and when firms are non-State-owned. Finally, we show that firms headquartered in high social trust regions tend to engage in more investor communication, have a lower probability to restate financial statements, and have lower stock price synchronicity.

Stock Price Level Effect

Companies actively manipulate stock price ranges through IPOs, stock splits, and repurchases. Indeed, empirical results suggest that the stock's price range, whether at a high or low price level, affects market performance. Unfortunately, archival data does not allow us to test the effect of stock price levels on investor behavior due to uncontrolled confound effects. We thus conduct a controlled online experiment with 900 US retail investors to test whether a difference in stock price levels affects the investor's risk perception, the price forecast, and the investment. Even though we �nd no differences in risk perception and forecasts, our results show signi�cantly higher investments in high-priced stocks in comparison to low-priced stocks. This effect disappears when we allow fractional share purchases or restrict naive trading strategies.

National Culture and Analysts’ Forecasting Behavior

We examine whether national culture, in particular, its individualism/collectivism dimension, affects sell-side financial analysts’ forecasting behavior. We find that analysts from individualistic cultures are more likely to issue bold earnings forecasts and stock recommendations than analysts from collectivistic cultures. These results are related to individualistic (collectivistic) analysts’ inclination to over-weight (under-weight) their private information in forming forecasts. The culture’s effect is not permanent: Although slowly, it does decay over time. For market consequences, short-window market reactions are stronger to bold reports by collectivistic analysts than to those by individualistic analysts. For longer-term effects, we find that higher individualism of the covering analysts is associated with lower stock price synchronicity, indicating proportionately more firm-specific information impounded in the stock price. In net, however, we find that individualistic and collectivistic analysts appear to be equally effective in mitigating firms’ information asymmetry.

Factor Investing, Learning from Prices, and Endogenous Uncertainty in Asset Markets

We study learning and uncertainty under the factor investing paradigm using an endogenous information model with correlated assets. As investors shift attention from firms towards systematic risk factors, stock prices become less informative, increasing systematic uncertainty and incentivizing learning about the systematic risk. This learning complementarity leads to multiple regimes in systematic uncertainty and attention allocation. We specify and estimate a model-based, forward-looking measure of attention to systematic versus firm-level information. Consistent with the model, the measure follows a regime-switching process. The high-level regime is linked to lower stock price sensitivity to firm-specific information and a higher systematic risk concentration.

Stock price synchronicity and price informativeness: Evidence from a regulatory change in the U.S. banking industry

Whether return synchronicity is associated with higher or lower stock price informativeness is still an ongoing debate in the academic literature. This paper contributes to this debate by exploiting an exogenous shock, provided by a regulatory change introduced by the Federal Reserve in 2015, and examining its impact on return synchronicity using a sample of U.S. listed bank holding companies (BHCs) operating during the period of 2014: Q3 – 2016: Q2. Applying a regression discontinuity design, we find that return synchronicity of treated BHCs decreases after the regulatory change. This finding suggests that lower return synchronicity represents lower stock price informativeness.

Predicting GDP growth with stock and bond markets: Do they contain different information?

AbstractThis paper examines the ability of bond and stock markets to predict subsequent GDP growth over a range of horizons for 12 international countries. The results, using linear, probit, time‐ and regime‐varying in‐sample regressions and out‐of‐sample forecasting, confirm the view that both financial markets exhibit predictive power for future output growth. Moreover, there is notable variation within the strength of the predictive relation, for example, predictive power increases during the financial crisis period. Results suggest that while the term structure arguably exhibits stronger predictive power, both series contain distinct predictive information. Notably, predictive power emanating from the stock return series appears stronger over shorter (up to four‐quarter) time horizons, while the term structure series exhibits more consistent predictive power over a range of horizons. Considering different regimes, we observe that the bond market exhibits greater predictive power for a flatter yield curve and lower stock prices relative to fundamentals, while the stock market exhibits greater predictive power for a steeper yield curve and higher relative stock prices. This suggests that the two financial markets exhibit different information content for future output growth. This view is further supported by forecast results whereby a model that includes both financial series outperforms a model that only includes one. Forecast encompassing tests further support the view that stock returns contain additional information over that presented by the term structure alone.