Lower Returns Research Articles

Shareholder litigation risk and stock returns

AbstractExamining the staggered adoption of universal demand (UD) laws as an exogenous shock to shareholder litigation risk, we show that firms have lower stock returns following that adoption in a difference‐in‐differences (DID) design and Fama and MacBeth (1973) regression. Sorting stocks into UD laws portfolios, we show that firms adopting UD laws earn lower risk‐adjusted returns than those who do not. Further, the relation between UD laws and returns is more pronounced when firms face financial constraints, CEOs engage in high risk taking, or takeover protection is low.

Corporate pension funds’ search for yield with private equity investment: Its determinants and consequences

AbstractThis study examines corporate pension funds’ search for yield through investments in private equity (PE). Using pension asset allocation data from 10‐K filings, we find that corporate pension funds significantly increase the PE share within their risky assets following underperformance relative to their expected return. This risk‐taking behavior is more pronounced for sponsoring firms that were more financially constrained with poorly funded plans in the previous year. Furthermore, we discover that pension asset allocation to PE does not significantly increase pension returns but does lower pension return volatility and tracking error relative to the expected return.

Target Firm Advertising and Firm Value

Consistent with hypotheses underlying firm advertising, we find that targets with pretakeover advertising obtain higher premiums, whereas their acquirers earn lower announcement returns. These economically significant effects suggest that through advertising, targets increase their profile and negotiating power. Further, targets that advertise are more likely to initiate their takeovers, attract multiple bidders, receive enhanced bids, capture more merger rents, and even in failed acquisitions, experience a 1% permanent revaluation. The latter result differentiates between information asymmetry and behavioral explanations for the target advertising. Overall, the results support the hypothesis that management advertises to transmit information to investors and potential acquirers. This paper was accepted by Victoria Ivashina, finance. Funding: A. L. Tran acknowledges financial support from the Mergers and Acquisitions Research Centre at Bayes Business School. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01534 .

A Study on the Dynamic Evolution Paths of Social Risks in PPP Projects of Water Environmental Governance—From the Vulnerability Perspective

The Chinese economy is transitioning from high-speed development to high-quality development, and water environmental governance is a key factor promoting economic transformation. Due to low returns and high investment in China’s water environmental governance, the PPP (public–private-partnership) model is often adopted. However, the PPP model has historically faced challenges adapting to local conditions in China, leading to social risks in the PPP projects of water environmental governance. To reduce these risks, this paper takes a vulnerability perspective, employing the system dynamics simulation method to explore the dynamic evolution process of social risks in the PPP projects of water environmental governance. The main results show the following: (1) the external manifestations of social risks during the construction and operation periods vary significantly, exhibiting notable fluctuations; (2) during the construction period, there is a surge in social risks followed by a returns to lower than normal levels, then a gradual upward trend; during the operation period, social risks initially decrease to a lower level before gradually increasing; and (3) city class, relevant legal systems, and resource reserves emerge as critical factors influencing vulnerability and social risks. The higher the city class, the lower the project vulnerability; the soundness of the legal system for PPP projects can effectively reduce vulnerability and social risks; sufficient resource reserves can reduce social risks. Based on the above findings, this paper proposes several suggestions aiming to reduce the vulnerability and social risks in PPP projects, optimize the process of water environmental governance, and further promote the sustainable development of water environmental governance and the high-quality economy of China.

Enhancing operational optimization of district heating substations through refined estimations of network campus buildings heat demands to achieve a low return from the network

Network temperatures in district heating systems are important operational factors for obtaining efficient performance. A low network return temperature allows for the recovery of low-grade heat from assets such as condensing boilers, waste incineration, geothermal sources and industrial waste heat. Fluctuations in heating and cooling demands affect the return temperatures of the building substations and in the network. This variability impacts the economic viability and environmental sustainability of the entire system. This paper presents a nonlinear optimization strategy to maintain sufficient energy flows in the network's primary and secondary circuits to achieve low return temperatures from all substations in the network. The defined optimization strategy incorporates the thermodynamic model of the substation and building heating system as opposed to traditional weather-based supply temperature adjustments. The estimated heat demands and tariffs, ▪ penalties are inputs used by the optimizer to find the optimal solution. The total operational expenditure for electricity and gas consumption shows an 18% reduction with 8% reduction in emissions and 6% efficiency improvement when compared with the measured weather-based approach. The developed strategy will aid the network operators in the economic dispatch of heat generation while ensuring the user's thermal comfort.

Exploring the greenium in the green Sukuk universe: evidence from the primary market

Purpose This study aims to fill a gap in the literature by providing evidence for a “greenium” in the primary Sukuk market. The term “greenium” is defined in the study as the lower cost of capital or reduced yields that green Sukuk may offer compared to non-green Sukuk, reflecting investor willingness to accept lower returns for green investments. Therefore, the main aim of this study is to investigate the potential role of “greenium” as an incentive for issuers to fund eco-friendly projects, contributing to a sustainable environment. Design/methodology/approach This study uses propensity score matching techniques to provide an accurate comparison of pricing differences between green and non-green Sukuk issued in global primary markets during the period 2017–2022. Findings The results reveal that green Sukuk signify a “greenium” effect. This suggests that investors find green Sukuk attractive, willing to accept lower returns. Given the positive investor response to green initiatives in the market, issuers can capitalize on the growing demand for green Sukuk, leading to low-cost funding. Originality/value This study makes an important contribution to the literature at the interface of Islamic finance and environmental sustainability. In particular, it stands out by focusing on the pricing dynamics in the green Sukuk market and highlights the potential benefits of issuing green Sukuk to help achieve sustainability goals while providing access to lower cost of capital for the transition to a low-carbon economy.

The Evolving Roles of the Gulf States in the Horn of Africa

The Gulf States and the Horn of Africa have had close cultural exchanges since ancient times, with linguistic, cultural and religious ties laying a solid foundation for the development of strategic cooperation between the two sides. After the Arab Spring, the Gulf countries have maintained their political stability and increased their strength. The war in Yemen pushed the geopolitical frontline of the Gulf countries to the opposite side of the Horn of Africa. The Gulf states, with their considerable financial resources, have increased their presence in the Horn of Africa through aid and investment. They are also actively involved in Horn of Africa politics, using their economic leverage to mediate conflicts and expand their political influence. They use the Horn of Africa as an extended battleground for geopolitical competition between them. However, the lack of strength of the Gulf states, the low return on investment, the reconciliation between the Gulf states, and the return of major powers to the Horn of Africa have reduced the momentum of their involvement in the Horn of Africa, prompting them to re-examine their Horn of Africa policies and to be more pragmatic in their political engagement and economic cooperation with the Horn of Africa countries.

ESG Performance, Heterogeneous Creditors, and Bond Financing Costs: Firm-Level Evidence

Exploiting credit spread to measure firm bond financing costs, this study explored the impact of environmental, social, and governance (ESG) performance on bond financing costs from the perspective of heterogeneous creditors. Our results revealed that national interbank bond market and qualified institutional investors are increasingly interested in aligning their capital with ESG-related investment opportunities. Thus, they require a low rate of return from firms with good ESG performance. In contrast, domestic legal and natural persons and ordinary institutional investors are unlikely to accept a low investment return in exchange for the positive impact of ESG. Additional robustness tests confirmed the results, including firm-fixed effects, variable substitution method, supplemental variable method, lagged variable approach, instrumental variable analysis, and propensity score matching. The results of mechanism analysis indicated that the bond cost reduction effect of ESG is achieved by improving firms’ information disclosure quality and reputation. In addition, because of trade-off theory and agency problems, the environmental and social factors of ESG have only a limited impact on bond cost reduction, whereas the governance factor markedly reduces bond costs.

Profitability dynamics of offshore wind from auction to investment decision

Offshore wind auctions in Europe have recently seen considerable price decreases, with resulting support levels low enough to warrant the question whether project profitabilities are robust enough against changing market prices, or whether project suffer from low returns upon project realisation. This study investigates the development of profitability between auction date and Final Investment Decision, mainly through identifying impacts of changes in electricity prices, using stochastic discounted cash flow analysis. Some projects seem to have experienced adverse market developments. The study employs an explanatory-sequential approach to analyse two strategies to mitigate this risk: Pricing risks into the auction bid and absorbing losses through reduced returns or, alternatively, passing them down to contractors in the supply chain. The study finds indications that post-auction market developments have likely led to diminishing returns of developers, rather than increased price pressure on contractors. The study enhances the understanding of project profitabilities and developers’ choices between auction and investment decision, and therewith opens the discussion on post-auction industry dynamics as an increasingly relevant factor to ensure that offshore wind can live up to its envisaged role in the decarbonisation of society.

Profitability measurement of selected Islamic Shariah-based private commercial banks in Bangladesh: A comparative Study

The purpose of this study is to analyze the profitability of five selected five Islami banks with a Shariah foundation and to determine whether these banks are more or less profitable. This study makes use of secondary data that was gathered from selected banks' annual reports between 2013 and 2022. This study employed a parametric approach; comparisons were assessed using descriptive analysis; the ANOVA test was used to assess reliability; and multiple regressions was utilized to assess impact. SPSS version 2014 is utilized for multiple regression analysis, and Excel 10 is used for ANOVA tests. The results indicate that the profitability of the selected banks is fairly high, with every bank under examination achieving favorable outcomes. The percentage of deposits with assets and the distribution of assets among the sample banks are not moderate. The inadequate asset allocation of FSIBPLC is indicated by its low return on assets. Furthermore, the bank has a deficiency in the area of net profit margin (NPM). Additionally, SIBL's debt collection and repayment are inadequate. Investors will be deterred from investing by the significant variations in return on equity found in almost every bank during the research period. Reducing overhead costs and enhancing the appropriate distribution of loans and advances will boost operating income and net profit efficiency. Above all, FSIBPLC and AIBPLC have fared well across the board. To optimize their profitability, the three remaining banks—IBBPLC, SIBL, and UBBPLC—had to step up their efforts.

COMPARATIVE STUDY OF DEBT AND EQUITY FUNDS IN INDIA

The purpose of this study is to examine the features of debt and equity funds in the Indian financial market, including their suitability, liquidity, tax implications, risk-return profiles, and other relevant factors. Through the purchase of fixed-income assets such as government bonds, corporate bonds, and money market instruments, debt funds look for investments that have low volatility and consistent returns. Equity funds, on the other hand, have a significant amount of their assets invested in equities, which can result in increased volatility but may also result in higher returns over the long term. According to the findings of the study, equity funds have the potential for bigger returns, while debt funds have a lower risk profile. This is the conclusion reached after comparing the two types of funds. Furthermore, the study investigates the tax consequences of both types of funds, which is crucial because taxes play a large influence in the decisions that are made regarding investments. Debt funds are subject to the short-term capital gains tax if they are kept for a period of time that is shorter than three years. The tax rate on long-term capital gains, on the other hand, is twenty percent, and indexation advantages are included. For equities funds that have been held for more than a year, the tax rate is 10% without indexation on profits that exceed ₹1 lakh. However, the tax rate for gains that are held for a shorter period of time is 15%. This study also investigates liquidity, which is another important factor to consider. Due to the greater liquidity of debt funds in comparison to individual fixed-income instruments, investors have more flexibility to withdraw their money from debt funds when they require it. This is because debt funds have better liquidity. It is possible for the underlying stocks of an equity fund to have an effect on the liquidity of the fund. In general, large-cap funds have superior liquidity than small-cap funds or sector-specific funds. In addition, the various investor profiles and the ways in which debt and equity funds are incorporated into their portfolios are discussed. Those who are retired, conservatives who are looking for returns with a reduced level of risk, or investors who have time horizons that range from short to medium are suitable candidates for debt funds. On the other hand, equity funds are more suitable for long-term investors who are willing to take on a greater degree of risk in the expectation of potentially bigger returns. Additionally, they are an excellent choice for individuals who are interested in riding the stock market's growth wave. Although debt and equity funds are complementary additions to any investor's portfolio, they perform distinct functions and have distinct risk-return profiles. Nevertheless, they are both beneficial to the investor. Prior to making decisions on investments, investors should do a comprehensive evaluation of their level of risk tolerance, investment horizon, and financial objectives. They ought to also give some thought to the possibility of diversifying their investments across a variety of asset classes. A comparative analysis like this one will prove to be a very useful resource for individuals who are considering making investments in India's financial markets. Keywords:- Debt funds, Equity funds, Risk-return profiles, Taxation, Liquidity, Investment suitability, Indian financial market.

Using leaf economic spectrum and photosynthetic acclimation to evaluate the potential performance of wintersweet under future climate conditions.

The function of landscape plants on the ecosystem can alleviate environmental issues of urbanization and global change. Global changes due to elevated CO2 affect plant growth and survival, but there is a lack of quantitative methods to evaluate the adaptability of landscape plants to future climate conditions. Leaf traits characterized by leaf economic spectrum (LES) are the universal currency for predicting the impact on plant ecosystem functions. Elevated CO2 usually leads to photosynthetic acclimation (PC), characterised by decreased photosynthetic capacity. Here, we proposed a theoretical and practical framework for the use of LES and PC to project the potential performance of landscape plants under future climatic conditions through principal component analysis, structural equation modelling, photosynthetic restriction analysis and nitrogen allocation analysis. We used wintersweet (an important landscaping species) to test the feasibility of this framework under elevated CO2 and different nitrogen (N) supplies. We found that elevated CO2 decreased the specific leaf area but increased leaf N concentration. The results suggest wintersweet may be characterized by an LES with high leaf construction costs, low photosynthetic return, and robust stress resistance. Elevated CO2 reduced photosynthetic capacity and stomatal conductance but increased photosynthetic rate and leaf area. These positive physio-ecological traits, e.g., larger leaf area (canopy), higher water use efficiency and stress resistance, may lead to improved performance of wintersweet under the predicted future climatic conditions. The results suggest planting more wintersweet in urban landscaping may be an effective adaptive strategy to climate change.

Calendar anomalies and asymmetric volatility of returns in the Indonesian stock market: conventional vs Islamic indices

Purpose This study aims to identify calendar anomalies that can affect stock returns and asymmetric volatility. Thus, the objective of this study is twofold: on the one hand, it examines the impact of calendar anomalies on the returns of both conventional and Islamic indices in Indonesia, and on the other hand, it analyzes the impact of these anomalies on return volatility and whether this impact differs between the two indices. Design/methodology/approach The authors apply the GJR-generalized autoregressive conditional heteroskedasticity model to daily data of the Jakarta Composite Index (JCI) and the Jakarta Islamic Index for the period ranging from October 6, 2000 to March 4, 2022. Findings The authors provide evidence that the turn-of-the-month (TOM) effect is present in both conventional and Islamic indices, whereas the January effect is present only for the conventional index and the Monday effect is present only for the Islamic index. The month of Ramadan exhibits a positive effect for the Islamic index and a negative effect for the conventional index. Conversely, the crisis effect seems to be the same for the two indices. Overall, the results suggest that the impact of market anomalies on returns and volatility differs significantly between conventional and Islamic indices. Practical implications This study provides useful information for understanding the characteristics of the Indonesian stock market and can help investors to make their choice between Islamic and conventional equities. Given the presence of some calendar anomalies in the Indonesia stock market, investors could obtain abnormal returns by optimizing an investment strategy based on seasonal return patterns. Regarding the day-of-the-week effect, it is found that Friday’s mean returns are the highest among the weekdays for both indices which implies that investors in the Indonesian stock market should trade more on Fridays. Similarly, the TOM effect is significantly positive for both indices, suggesting that for investors are called to concentrate their transactions from the last day of the month to the fourth day of the following month. The January effect is positive and statistically significant only for the conventional index (JCI) which implies that it is more beneficial for investors to invest only in conventional assets. In contrast, it seems that it is more advantageous for investors to invest only in Islamic assets during Ramadan. In addition, the findings reveal that the two indices exhibit lower returns and higher volatility, which implies that it is recommended for investors to find other assets that can serve as a safe refuge during turbulent periods. Overall, the existence of these calendar anomalies implies that policymakers are called to implement the required measures to increase market efficiency. Originality/value The existing literature on calendar anomalies is abundant, but it is mostly focused on conventional stocks and has not been sufficiently extended to address the presence of these anomalies in Shariah-compliant stocks. To the best of the authors’ knowledge, no study to date has examined the presence of calendar anomalies and asymmetric volatility in both Islamic and conventional stock indices in Indonesia.

Democracy and stock market returns

AbstractIn this article, we empirically examine the relation between democracy level and stock index returns in a sample of 74 countries. Compared with democracies, autocratic states are characterized by lower returns despite exhibiting higher return volatility. Even though this higher volatility can be mostly attributed to diversifiable country‐specific risk, the capital asset pricing model cannot explain the return differential. Instead, it is the level of investor protection that can fully account for the phenomenon described here. Autocratic leaders may be reluctant to promulgate regulations shielding investors, and the resultant expropriation depresses the returns realized by outsiders.

Estimating Probability Weighting Functions through Option Pricing Bounds

Abstract This paper proposes a novel approach to estimating the probability weighting function (PWF) of investors in the option market. We match observed option prices to the option pricing bounds under stochastic dominance rules. Using 1-month S&P 500 index option data, we find that investors could subjectively employ an inverse S-shaped probability weighting function, which increases the weights on extreme returns and asymmetrically assigns greater weights to extremely low returns than to extremely high returns. Our findings suggest that the inverse S-shaped nature of the PWFs is robust across various estimation specifications, such as adopting an alternative methodology to construct the return distribution, and employing option data with different times to maturity. (JEL G12)

Factors Influencing Access to Formal Credit by Pottery Households: Case Study in Bat Trang Village, Hanoi, Vietnam

Purpose:This paper aims to investigate the factors influencing pottery households’ access to formal credit in a craft village in Hanoi city, Northern Vietnam. Methods: By using Yamande’s formula, sample size of 167 households was determined. Descriptive statistics and Probit regression model were applied in quantitative data analysis. Results: Diversification of rural livelihood through the development of non-farm activities is one of important policies for holistic rural development in Vietnam. However, non-farm households in general and pottery households in particular have faced with capital shortage in production process. One of reasons for their capital limitation is difficulties in formal credit access. This research indicated that households’ credit access was influenced by factors including age, educational level, collateral value asset, and return from ceramic production after tax. Practical implications: This study presented important roles of formal credit for economic development of rural households in general and pottery households in particular. However, most households meet difficulties in accessing to formal credit due to their old age, lack of collateral assets and low return from their production. Originality: This study implied that policy makers in Vietnam should implement a specific credit support for non-farm households in rural areas. In addition, commercial banks should loose credit requirements on collateral value assets in order to help rural non-farm households to access to formal credit, particularly banking loan.

Delaware Reincorporation and the Double-Exit Puzzle: Evidence from Post-Initial Public Offering Acquisitions

Initial public offerings and mergers and acquisitions represent important opportunities for investors to exit and harvest their entrepreneurial success. Some firms are acquired shortly after their initial public offerings. This exit strategy is known as a double exit. In addition, issuing firms may choose to reincorporate in Delaware during their IPOs. In this study, we use hand-collected data from 1993 to 2020 to investigate whether and to what extent Delaware reincorporation may affect the M&As in the post-IPO stage. We use a Cox proportional hazard model to test the relation between Delaware reincorporation and the likelihood of being acquired for our sample IPOs. Recognizing that Delaware reincorporation is not a random decision, we adopt a Heckman switching regression method to estimate the relation between Delaware reincorporation and takeover premiums and announcement returns. We report that IPO firms choosing to reincorporate in Delaware experience a higher likelihood of being acquired compared to those IPO firms choosing to remain incorporated in their home states. We further document that IPO firms choosing to reincorporate in Delaware receive lower premiums in acquisitions, and experience lower abnormal returns on announcements.

E004 Question of the month; a simple method of patient engagement

Abstract Background/Aims Patient involvement at every stage of service development is key to driving forward meaningful change. It can however, be difficult to engage a broad demographic. Focus groups can gain in depth information but are time consuming and will only involve a small number of people. Questionnaires are often poorly completed or have a low return rate. Asking a ‘question of the month’ is a simple method of collecting a large amount of data on a single topic. We have recently reinstated patient education sessions following a break in their provision due to Covid-19 and were keen to optimise these by finding out what patients wanted. Methods A poster was place in the waiting room asking ‘What was the most useful information you were given when you were diagnosed with arthritis’. Patients were given a post-it note and asked to write an answer on it and stick it onto the poster. The same question was asked in paediatric, adolescent and general adult clinics to all follow up patients with inflammatory arthritis during September 2023. The question of the month concept was developed by the Rubis QI Team as part of the JIALearn project. Thematic analysis was performed for the three age groups separately. Results Themes common to all age groups: 1. Knowing that there are a range of effective treatment options available. 2. Hope: “it is not life changing”, “expect a long journey and try and remain positive” In paediatrics, effective, accessible communication was a dominant theme in “any concerns are important and are listened to” In adolescents and young adults being given hope and knowing that there were treatment options were the most dominant themes: “it doesn’t have to affect your life”, “knowing I had different choices out there to help me” In adults the most dominant theme was around self management, particularly around regular exercise, diet and weight loss. “I can manage my problem”, “allows you to stay in control”. Some patients used this project as an opportunity to leave positive feedback about their care to date. Clinicians involved reported good clinical engagement and an improved therapeutic relationship with patients. These themes will be used to guide future patient education sessions targeted at specific age groups. The results of this project will be developed into a poster for the waiting room to demonstrate that comments have been listened to and acted upon. Conclusion Adults newly diagnosed with arthritis place a strong emphasis on self management. The themes of open communication and hope emerged in children and young adults. The comments provided will help to guide and shape future patient education sessions. Question of the month is a simple way of engaging with a broad number of patients. Disclosure R. Waller: None.

Allocation optimization of two-stage compression-absorption heat exchanger

Space heating demand of buildings is a significant component of global energy consumption. Lowering the operating temperatures can increase the overall energetic and exergetic efficiencies. To obtain a lower return water temperature, researchers have proposed a variety of approaches. Absorption heat exchanger is an effective way to reduce return water temperature. However, in two-stage absorption heat exchanger and compression-absorption heat exchanger, extra temperature difference exists in evaporator of absorption heat pump. To eliminate the extra temperature difference, optimized compression-absorption heat exchanger is put forward in the article. Based on the typical case, the energy saving rate of optimized compression-absorption heat exchanger can reach 17.9 %, and the principle of energy saving is analyzed in the article, the key point is the extra temperature difference and the cooling capacity of evaporator of absorption heat pump. Further, the energy savings of the optimized heat changer in different supply and return temperature of primary and secondary network is analyzed. Main factors affecting the energy saving rate are primary network supply temperature and secondary network supply-return temperature difference. As the result, when primary network supply temperature is 130 °C and secondary network supply and return temperature is 50 °C and 40 °C, energy saving rate can reach 28.4 %.

Do Investors Underestimate the Risk of Asset Bubbles? ——Evidence from the Goodwill Bubbles of Chinese Listed Companies

ABSTRACT We investigate the extent of investors’ awareness of the bubble risk of assets’ fundamental value by examining Chinese listed companies’ goodwill bubbles. We find that firms with larger goodwill have a higher possibility of goodwill impairment recognition in the future, indicating a higher bubble risk of companies’ assets fundamental. Next, we find that firms with more goodwill experience lower stock returns in subsequent 1–3 years, which means investors do not demand corresponding risk compensation and underestimate the goodwill bubble risk for these firms. Furthermore, we investigate five behavioral biases driving investors to underestimate the bubble risk. The results show that investors’ gambling preference for bubble assets is the key driver, while investors limited attention, extrapolation, opinion divergence, and earnings expectation are not applicable in our setting. Our study suggests that investors’ gambling preference is a channel through which the risk of companies’ assets fundamental bubble transmits to the stock market.