Mean Cumulative Abnormal Return Research Articles

Price reaction to rights issue announcements of family firms

This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.

Stock Market Reaction to Regulatory Action on Anticompetitive Practices in India

This study examines the impact of regulatory action against anti-competitive practices on the stock market by using the event study method. Orders released by the Competition Commission of India are analysed. The mean cumulative abnormal return for the respondent firms is negative and statistically significant for orders taking up complaints for investigation, not statistically significant for orders dismissing complaints, and positive and statistically significant for orders upholding complaints. These results imply that the regulatory body is a credible information provider of the lawful nature of firms. The regulatory body should enhance investor awareness of its role as the enforcer of lawful competition and reduce environmental distortions that may alter the complementary deterrent effect of its orders. Studies of the impact of regulatory action against anti-competitive practices on investors are scarce, especially in emerging economies, and this study attempts to fill this void.

Apakah pengumuman resmi kasus pertama Covid-19 oleh Presiden Joko Widodo memiliki kandungan informasi? Event study pada saham-saham LQ-45

This study analyzes the phenomenon of the first case of Covid-19 transmission in Indonesia and its impact on the capital market in Indonesia. This study aims to test whether there is a negative PCAD pattern after the first announcement of the covid-19 virus transmission case on the Indonesian capital market and to prove that the Indonesian capital market experienced a significant decline in returns after the first announcement period of the covid-19 virus transmission. Stocks that are included as LQ45 stocks are being utilized and event study is the method to analyze the market response during the window period (t-10, t+10) and uses the independent sample t-test to compare the average abnormal return. mean (AAR) and mean cumulative abnormal return (CAAR). The results of this study indicate that the market takes a wait & see strategy, PCAD shows the form of a negative sign after the event and there is a difference between AAR and CAAR 10-days before and 10-days after the event. Overall, this research shows that the market has responded negatively to information related to the Covid-19 virus.

Premiums and Stock Price Responses in Equity-Stake Purchase Deals in Korea’s Stock Market

In this study, we examine a sample of 160 equity-stake purchase deals between companies listed on Korea’s stock market during 2009~2017. The sample comprises deals in which acquiring firms buy at least 5% of the target’s common stock but excludes mergers or acquisitions of the target’s entire equity. The deal premium is measured by the difference between the deal price and the target’s share price a day or a week before the deal’s announcement. We find that although the deal premium tends to increase with the size of the equity stake in the target, it is negative in about half of the sample and its median value is close to zero. Moreover, the deal premium is positively associated with the won value of the deal size relative to acquiring firms’ assets but negatively associated with their quality (measured by operating profitability) and size of insider ownership. We also analyze stock price responses to deal announcements. For acquiring firms, the mean cumulative abnormal return over (-2, 2) (i.e., CAR (-2, 2)) is not statistically significant but CAR (-2, 2) increases with deal premium and the target’s operating performance. For target firms, the mean CAR (-2, 2) is significantly positive (approximately 1.6%) but we cannot identify factors that are systematically associated with their CAR (-2, 2).

Firm Performance After California’s Refusal to Enforce Out-of-State Employee Non-Compete Agreements

We empirically exploit a quasi-natural experiment of the California Supreme Court’s decision to stop enforcing out-of-state employee non- compete agreements. Applying resource-based theory, we conceptualize this legal change as allowing unique access to a strategic factor market for human capital (i.e., out of state employees subject to non-compete agreements). This access results in California firms experiencing a mean cumulative abnormal returns of 2.53% in the three days immediately following the court decision. Moreover, this increase is strongly influenced by both labor market and firm-level factors. Specifically, firms currently facing high in-state labor market competition particularly benefit from this newly available labor pool. Firms already employing large numbers of knowledge workers and those with high research and development intensity also experience increased stock market returns.

Is cause-related marketing a winning strategy? An event study analysis

ABSTRACTCause-related marketing (C-RM) is the fastest-growing category of U.S. sponsorship spending. However, extant research provides no examination of whether investments in C-RM are economically worthwhile. This event study of 127 cause-related announcements from 1991 through 2011 shows a mean cumulative abnormal return of .74% occurring after two trading days. This indicates that C-RM programs are a good investment on average. Cross-sectional analysis of returns reveals that abnormal returns are augmented when the cause is tied to a special product and when firms pledge an additional concurrent donation. But the returns are depressed when a firm has high free cash flow.

Wealth Effects of Seasoned Equity Offerings: A Meta‐Analysis

AbstractWe use meta‐analysis to review studies on announcement effects associated with seasoned equity offerings. Our sample includes 199 studies from 38 leading finance journals and Social Sciences Research Network working papers. The studies cover different countries, but the US is particularly well‐represented with 131 studies. We find a statistically significant mean cumulative abnormal return of −0.98%. Abnormal returns are more negative for equity issues by US companies and for non‐US rights issues and are less negative for private placements. In addition, wealth effects are more negative when the proceeds are used for debt reduction, when the SEO is issued shortly after IPO, and for issues by nondividend‐paying companies and industrial companies. We identify important avenues for future research.

The Economic Worth of Product Placement in Prime-time Television Shows

Product placement is fiercely being courted by firms as a consequence of the declining credibility of traditional broadcast advertising and the ‘30-second spot’. Very little research analysing its economic worth exists outside of the realm of film, however. This paper responds by applying a consistent measure of placement effectiveness to television through use of event analyses. It finds a mean cumulative abnormal return of 0. 79% in a sample of 264 placements from the 2011-12 prime-time season, confirming that product placement in television is positively and significantly associated with movement in firms' stock prices. Placement in a season premiere has significantly higher mean returns than in a non-pivotal episode, irrespective of whether the firm places the product in both episodes. A cross-sectional analysis of placement, episode and show factors suggests that the duration of placement and one-hour show length are positively associated with stock price movement. Placement in a show's debut season is adversely associated to worth.

Hedge Fund Activism: An Empirical Analysis

This paper combines both theoretical evidence on hedge fund activism and empirical results obtained through an event study around the commencement of activism to show that the phenomenon is value-enhancing for shareholders. In particular, after defining what this form of arbitrage is, it is argued that hedge funds are best suited to engage in activism thanks to reduced conflict of interests, greater incentives to monitor, their size and less legal hurdles. Stock market reaction to announcement of activism is positive, as documented by a dataset of events from 2005 to 2008 that revealed a mean cumulative abnormal return of 4.38% on companies’ stock around the filing of Schedule 13Ds. Further analysis investigated activists’ stated goals, tactics adopted and whether the type of engagement was collaborative or hostile with existing management. Cross-sectional event study analysis by nature of approach resulted in higher abnormal returns in case of a hostile activist agenda.

Bad Loan Externalities: Evidence from the Syndicated Loan Market

This study examines external impacts of distressed bank loans on the lending banks and other borrowing firms. The banks, on average, lose almost 1% of their total market value, and the effect spills over to other loan syndicate members. The distress news also impacts the banks’ other borrowers, who experience seven-day mean cumulative abnormal returns of -0.31% for each distress announcement. Distress externalities are worse when the bank is more exposed to the bad loan, and for borrowers that are more relationship dependent. Future lending business is also negatively affected, as loan rates rise by 67 BP following large distress damage, and lenders are less likely to retain existing relationship borrowers.

Wealth Effects of Seasoned Equity Offerings: A Meta Analysis

We use meta-analysis to review studies on announcement effects associated with seasoned equity offerings. Our sample includes 168 studies from 32 leading finance journals and SSRN working papers. The studies cover different countries, but the U.S. is particularly well-represented with 120 studies. We find a significantly mean cumulative abnormal return of -1.13%. Abnormal returns are more negative for equity issues by U.S. companies and for non-U.S. rights issues. In addition, wealth effects are more negative when there is insider trading before an equity issue, when the proceeds are used for debt reduction, and for issues by dividend-paying companies. All else equal, published papers report more negative wealth effects than working papers. We identify important avenues for future research.

O PAPEL CERTIFICADOR DOS FUNDOS DE PRIVATE EQUITY E VENTURE CAPITAL SOBRE A QUALIDADE DAS EMPRESAS ESTREANTES NA BM&FBOVESPA

This study verified, from the perspective of the signaling theory, the certifying role of Private Equity and Venture Capital funds in the quality of companies that are newcomers on BM&FBovespa (IPOs). Therefore, an event study was proposed to verify the existence of cumulative abnormal returns (proxy for IPO quality) in investments portfolios of stocks from the IPOs launched on BM&FBovespa between January 2004 and December 2007. The research hypotheses were verified by means of three distinct procedures: test of means, CAPM and CAR regressions. It was verified that companies that received contributions from Private Equity and Venture Capital showed statistically higher mean cumulative abnormal returns than companies without investments. The regression results indicate that, the greater the participation of PE/VC funds, the better the IPOs’ long-term performance. The evidence found suggest that the presence of PE/VC funds in the companies that were newcomers on BM&FBovespa has a positive effect on the cumulative abnormal returns of the IPOs.

Information asymmetry and accounting restatement: NYSE-AMEX and NASDAQ evidence

We examine the impact of accounting restatement announcement on firms’ value and information asymmetry for both auction market (NYSE-AMEX) and dealer market (NASDAQ) using a public sample of restatement announcements from 1997 to 2005. In both markets, we document economically and significantly negative mean cumulative abnormal returns around the announcement dates. The restatements attributed to auditors are associated with more negative returns than those attributed to management and the SEC. However, there is no significant difference between market reactions arising from the core and non-core restatements. We also find a significant increase in volume, number of transactions, average order size, volatility, and various measures of spreads after the restatement announcement indicating that restatement announcements diminish company prospects and contribute to increased uncertainty and information asymmetry. Finally, we find that the information asymmetry in the NASDAQ market around the event date is less pronounced than in the NYSE-AMEX market.

Wealth effects of convertible-bond and warrant-bond offerings: a meta-analysis

The literature on wealth effects associated with the announcements of convertible-bond and warrant-bond offerings is reviewed. The findings of 35 event studies, which include 84 sub-samples and 6310 announcements, are analysed using meta-analysis. We find a mean cumulative abnormal return of−1.14% for convertibles compared with−0.02% for warrant bonds, the significant difference confirming a relative advantage for warrant bonds. Abnormal returns for hybrid securities issued in the USA are significantly more negative than those issued in other countries. In addition, issuing hybrid securities to refund debt does not seem to be favoured by investors. Finally, several factors identified as important by theory or in prior research are not significant within our cross-study models, suggesting that more evidence is needed to confirm whether they are robust.

Blank Check Acquisitions

Special Purpose Acquisition Companies (SPACs), a particular type of blank check firms, have risen dramatically since 2003 and account for one third of the U.S. IPO market in 2008. Compared to other public acquirers, SPACs tend to make focused acquisitions, target mostly private companies, are less likely to do cash only deals or tender offers, and less likely to complete acquisitions. SPACs exhibit a mean cumulative abnormal return of 1.7% upon deal announcement and a monthly excess return of 1.5% from deal announcement until closing. I show that SPACs make better acquisitions: they negotiate an additional 7.6% discount compared to other public acquirers that bid for private targets. The results highlight the role of specialization, ownership structure, and independent long-term institutional blockholders’ monitoring as important corporate governance mechanisms in SPACs.

Information Content of Internal Control Weaknesses: The Evidence from Japan

We examine Japanese stock market responses to the disclosure of internal control weaknesses (ICW), especially in relation to other information released around the disclosure date and to firm attributes. Japan is classified as a code-law country, where corporate disclosure tends to be less timely than in a common-law country. Indeed, for the first two years, the disclosure rate of ICW has been much lower in Japan than in the US. Our standard event study analysis shows that the mean cumulative abnormal returns for all firms disclosing ICW are not significantly different from zero. However, after controlling for firms with effective internal control, other information released around the disclosure date and firm attributes, we find that the disclosure of ICW negatively affects stock prices. Our results indicate that the disclosure of ICW is informative to the market, because it is rare and exceptional in Japan.

Dividend Announcement Puzzle and its Impact on Return to the Banking Sector Investors of DSE

This study paper examines the effect of dividend declaration on banking sector stock return in DSE. A sample of 10 listed banking companies has been examined for the time period of 2008, 2009 and 2010. Our findings show that there are some impacts of dividend declaration on the stock return. The Average Abnormal Return (AAR) increases on the declaration date and then decreases sharply. The Mean Cumulative Abnormal Return (MCAR) shows mixed behavior prior to the announcement day, a slight upward on the announcement day and then shows decreasing trend. Regression model reveals that there is very strong impact of announcement on the stock return, and hence it is sensitive to price movements. The models clearly showed that the impact is highest “One Day After” the date of dividend declaration in comparison to On the Day” and “One Day Before” the date of declaration.

Wealth Effects of Convertible Bond and Warrant-Bond Offerings: A Meta Analysis

We review the literature on wealth effects associated with the announcements of convertible bond and warrant-bond offerings. The findings of 35 event studies, which include 84 sub-samples and 6,310 announcements, are analysed using meta-analysis. We find a mean cumulative abnormal return of -1.14% for convertibles compared with -0.02% for warrant-bonds, the significant difference confirming a relative advantage for warrant-bonds. Abnormal returns for hybrid securities issued in the United States are significantly more negative than those issued in other countries. In addition, issuing hybrid securities to refund debt does not seem to be favoured by investors. Finally, several factors identified as important by theory or in prior research are not significant within our cross-study models, suggesting that more evidence is needed to confirm whether they are robust.

Evidence of share option backdating in the JSE Top 40 since 2001

This study investigates whether executives backdate share option grant dates to their advantage in South Africa. Using data for 175 options granted to executives of the JSE top 40 companies between 2001 and 2006, a pattern of negative cumulative abnormal share returns before the grant dates but positive and increasing returns thereafter is observed. This pattern is far more pronounced for unscheduled grants than scheduled grants. Statistical testing shows that the mean cumulative abnormal returns are significantly different from zero after the grant date, but are not significantly different from zero before the grant date. The mean differences between pre- and post-grant period average cumulative abnormal share returns are significantly different. These results suggest that there is statistical evidence that opportunistic behaviour around executive option grants, including backdating, took place.

The Worth of Product Placement in Successful Films: An Event Study Analysis

As a result of the diminishing effectiveness of broadcast advertising, firms are increasingly turning to product placements in films and television to promote their products. A growing stream of product placement research has conducted surveys of consumer and practitioner views on the practice and experiments to gauge product placement's impact on brand awareness, attitudes, and purchase intent. However, there is no evidence of whether firms’ investments in film product placements are worthwhile. The event study of 126 product placements in successful films during 2002 reveals a mean cumulative abnormal return of .89% during the film's opening, indicating that product placement in a successful film is associated with positive movements in firm stock prices. Cross-sectional analysis of the returns offers new insight into how product, film, and execution factors influence the placement's worth. The authors find that placement abnormal returns are enhanced by tie-in advertising and brand equity but are inhibited by audience absorption, critical acclaim, and violent film content. Placement modality, character associations, and blatancy also significantly affect the placement's value.