Announcement Market Research Articles

Investigating the impact of company announcements on stock prices: an application of machine learning on Australian lithium market

This paper investigates the effects of various types of announcements made by lithium producers on stock prices. We collected data from 40 lithium-producing companies listed on the world's largest stock exchanges, spanning from May 2020 to September 2022. To analyze the impact of announcements such as quoted and unquoted securities, market announcements, company reports, public meetings and presentations, financial announcements, and technical announcements on stock prices, we employed an extreme gradient boosting (XGBoost) model. Our results indicate that stock exchange market announcements and announcements about public meetings and presentations significantly influenced the stock prices of all eight large-cap companies studied. Announcements about public meetings and presentations were crucial predictors of stock prices for 73% of all companies analyzed. Additionally, positive financial announcements were key predictors for 70% of the companies. These findings suggest that investors should consider these predictors when making investment decisions in the lithium-related stock market. This study contributes to the existing literature by providing empirical evidence on the impact of different types of announcements made by lithium producers on stock prices. Furthermore, the XGBoost model used in this study can be applied to other industries and markets to analyze the impact of various types of announcements on stock prices.

Do Executives Use Their Corporate Jets to Go Provide Private Information to Investors?

In this study, we use data on the flight paths of corporate jets to assess the likelihood that executives are engaging in private meetings to provide market-sensitive information to large investors ahead of key events, such as announcements of a share buy-back or earnings surprises. We find that shortly before making such market announcements, executives are indeed more likely to fly to places where their investors are located. Moreover, we find that investors seem to act on information provided to them: following the meetings, they tend to increase their shareholdings, in comparison to investors that have not been visited. Through these findings, we advance the literature that takes a socio-political perspective on corporate governance, including the relations between senior executives and company investors. We also contribute to the literature on corporate misconduct.

Merton model’s prediction and empirical evidence on bond and equity prices reaction to new bond issues

ABSTRACT I use the Merton model as a theoretical framework to assess 1) the expected impact of a new bond offering on existing bond and stock prices, and 2) how the bond and stock price reactions are conditioned on characteristics of the new and existing bonds and the planned use of the new funds. Consistent with the Merton model prediction, I find negative and significant average abnormal returns of issuers’ existing bonds over a three-day event window surrounding the announcement of new bond issues. In contrast, average abnormal stock returns of the issuing firms are positive but insignificant. Bond market announcement returns estimated using daily corporate bond data from TRACE are more negative for longer-term outstanding bonds and less negative when the new bonds are junior to existing bonds. I also find that the bond price reaction (stock price reaction) is more negative (less positive) when funds are to be used for expansion than when they are to be used to repurchase stock.

“It’s a long story…” – impression management in South African corporate reporting

PurposeThe purpose of this paper is to investigate whether companies listed on the Johannesburg Stock Exchange use impression management techniques to obscure financial performance across the corporate reporting suite.Design/methodology/approachMixed-effect linear regression models were used to examine whether there is a relationship between the financial performance of a company and the length or complexity of the reports produced.FindingsConsistent with trends examined internationally, companies with lower financial performance tend to present lengthier disclosures throughout the reporting complement. However, there is limited evidence to suggest a definitive relationship between report complexity and performance. Corporate reports have maintained a consistent level of complexity and are not easily readable.Social implicationsThis paper is unique as it simultaneously considers multiple corporate reports, including the annual financial statements, integrated reports and market announcements. The paper contributes to the limited body of literature on impression management from emerging economies.Originality/valueA comparison of the complexity measures to the average education level of South Africans indicates that most corporate reports are not readable to the layman investor. Thus, despite there being no definitive relationship between complexity and performance, there is impetus to simplify corporate reporting.

Corporate Governance, Product Market Competition and Announcement Returns of Spinoff Firms

Our paper investigates the relationship between corporate governance (internal corporate governance mechanism) and announcement returns of spinoff firms, and examines whether such relationship can be explained by product market competition (external corporate governance mechanism). Using a sample of 269 completed spinoffs between 1983 and 2009, we find a nonlinear U-shaped relationship between corporate governance and the cumulative abnormal return around the announcement period. Moreover, we find that such a nonlinear relationship hinges on the level of competition in the market in which the spinoff firms operate. Specifically, we find that weak governance firms experience higher announcement period return only in highly competitive industries, while strong governance firms exhibit higher announcement period return, but only in moderately competitive industries. Our findings reconcile the mixed results in the literature regarding the relationship between corporate governance and firm value by examining the effect of product market competition on this relationship. Our results highlight the importance of product market competition as a moderator between corporate governance and the announcement period return of the spinoff firms.

China’s Development of ETS as a GHG Mitigating Policy Tool: A Case of Policy Diffusion or Domestic Drivers?

AbstractChina launched its national emissions trading scheme (ETS) in late 2017. This article examines the key drivers behind China’s 2011 decision to opt for ETS as a GHG mitigating policy tool and what lay behind the choice of the system’s design features. Given the existence of the frontrunner EU ETS and that market mechanisms have spread across the world in recent years, we analyze the role played by policy diffusion in the decision to launch an ETS and in the subsequent design process, seen in relation to domestic drivers. The article investigates policy developments culminating in the 2011 carbon market announcement, and the reasons these design elements were chosen for the pilot schemes and the national market in the period 2011–2017. The article contributes to our understanding of policy diffusion at different stages of policy development in China, by revealing which diffusion mechanism is more prevalent at different stages. We find first that overall domestic conditions and drivers had the most consistent impact on policy decisions to establish a carbon market and on the selected sectors. However, a second key finding is that the role of policy diffusion varied over time, with such diffusion, in the form ofideational impact, playing the most important role early on, providing a powerful inducement for China to go for a carbon market. Third, sophisticated learningfrom international projects took place in the pilots, allowing China to adapt policies and design features to match local conditions.

The Influences of the Plaintiffs/Defendants, Outcomes, and Settlements of Patent Litigations on the Stock Market

This study examines market announcements and their long-term effects on patent litigation and lawsuit verdicts in Taiwan. In addition, we analyze how the financial and relevant litigation variables influence the cumulative abnormal return (CAR). We find that the plaintiff firms, firms winning the lawsuit, and reconciliation firms achieve significantly positive abnormal returns during the event period. The cumulative number of patents and the RandD ratio have significant positive influence on the CAR of patent litigation and lawsuit verdicts, respectively. During the period of lawsuit verdicts, for firms with weak corporate governance, the market reaction tends to be more negative. Key words: Patent litigation, lawsuit verdict, abnormal return, buy and hold, corporate governance

Confirming Signals are Hard to Resist: Blessing and Curse of Information Under Confirmation Bias

Ample empirical evidence documents that individuals pay more attention to confirming than to contradicting evidence. In the context of the so-called confirmation bias, we first study the effects of additional information on perception correctness - contrasting the competing effects of total signal precision and the possibility to search for the most suitable signal. We provide the testable hypothesis that managers inform about bad news in a more diffuse signal compared to good news. This in turn provides an explanation of the dispersion anomaly: disperse signals are followed by underperformance. Second, we study the effects of confirmation bias in an overlapping generations model with a continuous signal distribution. Several results of more simplified models do not hold true any longer - e.g. confirmation bias leads to initial underreaction instead of overreaction. In a framework with endogenous market entry and exit, this initial underreaction triggers subsequent overreaction. This momentum effect is accompanied by time varying market participation, announcement day and market depth effects.

Reactions to corporate insider’s transactions: Do legal stock market disclosure rules have an impact?

We test the impact on security prices of top manager’s requirement’s to disclose their own share transactions in the firm. Specifically we study whether buy or sales transactions convey relevant information for market participants thereby studying the effects of legal stock market disclosure rules. Based on a comprehensive collection of stock market announcements from Danish CEOs and chairmen we find that insiders’ transactions influence share prices. However, it appears that there is a surprisingly difference, as buy transactions by chairmen have a much higher impact compared to CEO transactions, which to our knowledge have not been noticed already by others. Thus, our event study shows that the Danish stock market seems to be efficient in the semi-strong from.

The determinants and market reaction to Open Briefings: an investor relations option and evidence on the effectiveness of disclosure

AbstractOpen Briefings are market announcements styled as question and answer transcripts from a mock analyst interview and run by Orient Capital, an investor relations consultant. We found that Open Briefings are used by both growth and mature firms, and that Open Briefings are significant market events at both the daily and intraday level. In addition, the positive abnormal return does not soon reverse, suggesting Open Briefings are used by investors. We contribute to the existing literature by finding a stronger market reaction for firms with greater incentives to increase market awareness.

Level shifts in stock returns driven by large shocks

Abstract This paper employs a parametric model of persistent (level) shifts in the conditional mean of stock market returns which are endogenously driven by large positive or negative return shocks. These shocks can be taken to reflect important market announcements, monetary policy regime changes and/or changes in business conditions affecting stock market. The model assumes that both the timing and size of breaks are stochastic. The last property of the model distinguishes it from other nonlinear models of the literature employed to capture level shifts in stock returns. Implementation of the model to the US stock market indicates that it can successfully capture level shifts in the mean of the aggregate return of this market which follow a cyclical pattern. Most of these shifts are triggered by negative large return shocks. The latter can be of smaller magnitude than that of the positive ones. Finally, the paper shows that the model can be employed to successfully forecast future expected stock returns.

More than meets the eye: Convertible bond issuers' concurrent transactions

We document that, in recent years, over 60% of convertible bond issuers conduct concurrent transactions including share repurchases, call option purchases, warrant sales, seasoned equity offerings, and stock lending program initiations. We investigate the determinants of issuers' choice of concurrent transactions and find that a proxy for capital supply (flows to convertible bond arbitrage hedge funds) is a significant determinant. Option purchases are more likely when capital supply is low and the convertible is dilutive to earnings. SEOs are more likely when firms have valuable growth opportunities and capital supply is low. Convertible issuers establish lending programs when arbitrageurs likely encounter difficulty shorting their stock, suggesting that these firms facilitate short selling in their own stock. These results suggest that, in the convertible bond market, the influence of capital supply extends beyond the issuance decision to the use of concurrent transactions and that these transactions offer important flexibility to issuers. We find that average equity market announcement effects differ when issuers conduct concurrent transactions. Consistent with models of adverse selection, concurrent transactions that reduce the dilutive impact on earnings, thereby making the design more debt-like, are associated with less negative announcement effects. Conversely, concurrent transactions that increase the dilutive impact on earnings, thereby making the design more equity-like, are associated with more negative announcement effects.

Structural Breaks in Stock Returns Driven by Large Shocks

This paper employes a parametric model of structural breaks in the mean of stock returns which allows them to be endogenously driven by large positive or negative stock market return shocks. These shocks can be taken to reflect important market announcements, monetary policy regime shifts and/or changes in business conditions which affect stock market. The model assumes that both the timing and size of breaks are stochastic. The last property of the model distinguishes it from models suggested in the literature to capture structural breaks or regime shifts in the mean of stock returns. Implementation of the model to the US stock market indicates that the model can successfully capture structural breaks in the mean of the aggregate return of this market. Most of these breaks are triggered by negative large return shocks. The latter can be of smaller magnitude that the positive ones. Finally, the paper shows that the model can be employed to successfully forecast future expected stock returns.

More than Meets the Eye: Convertible Bond Issuers' Concurrent Transactions

In recent years, over 60% of convertible bond issuers conduct concurrent transactions including share repurchases, call option purchases, warrant sales, seasoned equity offerings, and stock lending program initiations. We investigate the determinants of issuers' choice of concurrent transactions and find that a proxy for capital supply (flows to convertible bond arbitrage hedge funds) is a significant determinant. Option purchases are more likely when capital supply is low and the convertible is dilutive to earnings. SEOs are more likely when firms have valuable growth opportunities and capital supply is low. Convertible issuers establish lending programs when arbitrageurs likely encounter difficulty shorting their stock, suggesting these firms facilitate short selling in their own stock. These results suggest that, in the convertible bond market, the influence of capital supply extends beyond the issuance decision to the use of concurrent transactions and that these transactions offer important flexibility to issuers. We find that average equity market announcement effects differ when issuers conduct concurrent transactions. Consistent with models of adverse selection, concurrent transactions that reduce the dilutive impact on earnings, thereby making the design more debt-like, are associated with less negative announcement effects. Conversely, concurrent transactions that increase the dilutive impact on earnings, thereby making the design more equity-like, are associated with more negative announcement effects.

The Market Status Tendency, the Corporation Specified Information, and the Market Announcement Effect of M&A

The paper investigates the market announcement reaction of M&A and its hidden information contents, the corresponding empirical accounting analyses are executed completely based on the M&A capital market data covering 4 year's event from 2006 to 2009 and the hidden information contents are disclosed with some logically integrations from the view of behavior finance. Some valued conclusions can be achieved listed as follows: The loss corporations are inclined to launch M&A activities significantly during bull market period whereas there is not any significant market bull or bear mark; There are significant positive market reactions especially at the first day before M&A declared, After the declared day, the market reactions are negative at once during bear market whereas they are slow to become negative during the bull market, and there isn’t any significant difference between bull market and bear market, but the significant difference is shown after M&A declared; The more perceptual features are shown in the M&A announcement effect in the pre-declared days than that of post-declared days, and the more perceptual features are also shown in the bull market than that of bear market during M&A activities. Thus some suggestions are pointed out including disclosing the corporations’ information thoroughly, enhancing the supervisors’ power strongly and cultivating the investors’ competence,etc.

Bondholder Wealth Effects Surrounding Bond Offering Announcements

Extant literature provides scarce and inconclusive evidence on the announcement impacts of bond issuance on prices of the firm’s existing bonds. In this paper, I provide empirical evidence on the impact of announcements of new bond issuances on the bond and stock prices of issuers. The results are generally consistent with predictions suggested by the wealth transfer model developed by Merton (1974). I find that average abnormal standardized bond returns on issuers’ existing bonds over a three-day event window surrounding the first announcement of the planned issues are negative and statistically significant. In contrast, the average abnormal stock returns of the issuers are positive but insignificant. Bond market announcement returns are more negative for larger bond offerings, longer-term existing bonds, when the bonds to be issued will mature before the existing bonds, and when newly raised funds are to be used for expansions. This suggests that existing bondholder’ losses are a function of asset dilution, the level of bond default risk and the potential misuse of newly raised funds. Additionally, existing bond prices react negatively and in greater absolute terms while stock prices react positively and to a greater extent around the announcement when a firm has longer-term existing bonds, and when newly raised funds are to be used for stock repurchases. Consistent with a combination of wealth transfer and signaling, I find more negative bond returns and negligible stock returns when a firm intends to use newly raised funds for expansions.

Characteristics of Firms that Buy Voluntary Disclosure: Evidence from Open Briefings

Firms increasingly can choose to disclose news through a variety of channels. The study of alternative disclosure channels can provide insights into not just why firms disclose, but why they disclose using different methods. This paper focuses on a unique disclosure option for Australian firms, called Open Briefings. Open Briefings are question and answer documents that are announced on the Australian Stock Exchange. Firms pay Orient Capital, an investor relations consultant, to hold one and are motivated to disclose via Open Briefings as they serve to heighten the attention and effectiveness of disclosure. We find that Open Briefing firms are more likely to be loss making, in the resource sector, younger, have a greater dispersion of share ownership, make more market announcements, have greater director independence and are likelier to issue equity after the Open Briefing. We add to the voluntary disclosure literature by finding that both mature and growth firms use attention increasing disclosure (investor relations activities) when they have reasons to do so. Furthermore, Open Briefings are useful for firms to supplement existing firm coverage. We also document the characteristics of firms that hold different types of Open Briefings. This adds to our understanding of voluntary disclosure by providing insight into the types of firm using Open Briefings and the reasons for doing so.

Statutory-Backed Continuous Disclosure Regime and Corporate Disclosure Behaviour – Does Corporate Governance Matter?

Since 1 December 2002, the New Zealand Exchange’s (NZX) continuous disclosure listing rules have operated with statutory backing. To test the effectiveness of the new corporate disclosure regime, we compare the change in quantity of market announcements (overall, non-routine, non-procedural and external) released to the NZX before and after the introduction of statutory backing. We also extend our study in investigating whether the effectiveness of the new corporate disclosure regime is diminished or augmented by corporate governance mechanisms including board size, providing separate roles for CEO and Chairman, board independence, board gender diversity and audit committee independence. Our findings provide a qualified support for the effectiveness of the new corporate disclosure regime regarding the quantity of market disclosures. There is strong evidence that the effectiveness of the new corporate disclosure regime was augmented by providing separate roles for CEO and Chairman, board gender diversity and audit committee independence, and diminished by board size. In addition, there is significant evidence that share price queries do impact corporate disclosure behaviour and this impact is significantly influenced by corporate governance mechanisms. Our findings provide important implications for corporate regulators in their quest for a superior disclosure regime.

Market discounts and announcement effects of private placements: evidence from China

This article examines the market discounts and announcement effects of private equity placements in China. We find that, on average, Chinese firms have about 30% market discounts for private placements, which is higher in number than those of US firms. Firms experience positive announcement effects for private placements and such effects are positively related with the market discounts.

Brand transaction announcements and stock price volatility

PurposeThis paper aims to investigate the potential relationship between the stock market announcement of a brand's buy and sell agreement, and the stock price trend.Design/methodology/approachThe research question was approached using a GARCH‐based statistical analysis on a sample of companies listed on the Mibtel (Italian stock exchange) that have a brand among their assets and have undertaken a purchase/sale from 2006 to 2008.FindingsAlthough the brand is believed to be an important value driver, the mere occurrence of a purchase/sale operation for this asset only occasionally leads to a reaction in the market; at any rate, the stock's volatility quite rarely depends solely on such an occurrence.Research limitations/implicationsThe statistical relevance of the analysis is limited by the observational data that it was possible to analyse. In particular, to give a positive conclusion about the influence of the brand's buy and sell agreements on a stock's return, it is necessary to have a time series of a greater number of firms. A larger availability of data might, in the future, allow a more detailed analysis and the opportunity to investigate the possible impacts of the event with relation to the business's characteristics – something that could not be carried out in this study because of the aforementioned problems.Practical implicationsResearchers and practitioners are now aware that the market does not always look upon the operations of a brand's buy and sell agreement as value‐relevant.Originality/valueThe originality of the present work lies in the fact that, to the best of one's knowledge, no other surveys were carried out on the chosen sample (i.e. the companies listed on the Italian stock market); that only a few international contributions posed the same research question; and most importantly, that the statistical methodology used can very well provide more reliable results than regression analysis, which is normally applied to such data.