Negative Market Effects Research Articles

Can a Viral Blunder Damage Auditor Brand Name Reputation? Evidence From Envelopegate

“Envelopegate” is a term used to describe PricewaterhouseCoopers’ (PwC)’s service failure that occurred during the 2017 Academy Awards ceremony (“the Oscars”). For PwC, the error resulted in immediate and unprecedented negative publicity, which was driven by a viral response on social media and other online media platforms. Thus, Envelopegate offers a unique opportunity to observe the potential spillover effects of negative viral events on the brand name reputation of an audit firm. Using intraday and daily client stock returns, we find a significant negative market response for PwC audit clients within the first minute of trading on the day following Envelopegate. The negative market effect is driven by clients with higher demand for auditor reputation, but we find no evidence that results are driven by any specific audit market region. Thus, our research underscores the susceptibility of an audit firm’s brand value to negative viral events, even when the event is unrelated to audit services. The findings of this study should be of interest to scholars exploring how audit firms form and maintain reputations as well as to professional service firms that engage in highly visible client services as part of their strategic efforts to enhance brand value.

Idea Development Method, Applying Systems Design Thinking in a Very Small Entity

AbstractVery Small Entities (VSE) delivers a substantial percentage of the world's product and services. These agile and innovative companies approach their market in a flexible, informal, and human‐centered approach. Their transformation from startup phase to an established company can be problematic. As they grow, the VSE must put more emphasis on incorporating formal organizational structure and processes to cope with the increased size and complexity. Failure in adapting often results in a negative market effect. Systems Design Thinking (SDT) is a combination of Systems Engineering, Systems Thinking, and Design Thinking. There is an increased awareness that the perspectives of SDT bring value to organizations. However, the advantage of SDT is not well understood for VSEs that are in the maturing phase. In this work, the researchers explore the value of SDT for very small enterprises transitioning from infancy to adolescence. The article presents a new method for idea development based on SDT principles and tailored to the needs of a VSE. Case‐based research is applied in a small company to understand the needs and verify the desirability, feasibility, and viability of our proposed method. The results suggest that an SDT approach improves the company's ability to capture and develop ideas and can help grow the company.

Measuring CSR Disclosure when Assessing Stock Market Effects

ABSTRACT A growing number of studies are using a dichotomous variable indicating the presence of a standalone CSR report to capture impacts of CSR disclosure. Our concern is that, without considering differences in the information provided, such an approach could lead to incorrect inferences regarding those impacts. We extend prior research by examining whether, similar to differences in environmental disclosure, the mere presence of a standalone CSR report also mitigates negative market reactions at times of regulatory cost exposure. We focus on the 2011 Fukushima Daiichi disaster and a sample of international utilities with nuclear power generation. Controlling for other factors related to social and regulatory cost exposures, we find only the environmental disclosures appear to reduce negative market effects. We argue that, in exploring the impacts of CSR disclosure, researchers need to carefully consider, beyond just the presence of a CSR report, differences in the extent of information being provided.

ESTIMATION OF CREDIT RISK LOSSES AND MODELING OF BANK LIQUIDITY RISK

The recent crisis in the banking system has shown that the functions of banking risk management have not been given sufficient attention. This jeopardized the efficiency of the entire domestic banking system. Insufficient efficiency of the risk assessment and modeling system in domestic banks has led to a number of negative consequences for the Ukrainian economy as a whole. Therefore, the problem of developing scientific and methodological approaches to the assessment and modeling of banking risks is relevant and of practical importance. The purpose of the article is to assess credit risk losses, model liquidity risk of banks and develop practical recommendations for the introduction of modeling of liquidity risk in the activities of domestic banks. Approaches to defining the concept of banking risk are analyzed. It is established that banks operate in conditions of high credit risks which result in significant amounts of non-performing loans. Credit risk losses were assessed according to the scenarios of compromise and aggressive risk lending position. The Van Den-End liquidity stress testing model was used as a tool to identify negative market effects and financial liquidity shocks. The general tendency of the ratio of liquidity buffer to liquidity deficit taking into account the risk is determined and substantiated and the forecast for the future period is made. We found that the efficiency of the bank’s loan portfolio is low. However, there is a dynamic increase in the efficiency of the bank’s loan portfolio from 0.00982 at the beginning to 0.09447 at the end of the year. This trend is positive. According to the results of the simulation, we found that with a sufficient amount of liquidity buffers of assets in JSC “PrivatBank” their quality remains low, because the share of secondary reserves in the bank is critically low. The bank is state-owned and is constantly refinanced on the interbank credit market. This allows the bank to work only on the first stage of the scenario of this model. The bank is practically protected from risk shocks by government securities.

Reprint of: Stock salience and the asymmetric market effect of consumer sentiment news

We document asymmetric announcement effects of consumer sentiment news on United States stock and stock futures markets. While a negative market effect occurs upon the release of bad sentiment news, there is no market reaction for the counterpart good news. This supports the “negativity effect” hypothesis. Notably, this effect seems most likely to occur in salient stocks, which is consistent with the availability heuristic.

Wheat export restrictions and domestic market effects in Russia and Ukraine during the food crisis

Studies investigating the effects of wheat export controls on the domestic market in the exporting country itself are scarce. This paper analyses the domestic market impact of wheat export controls in Russia and Ukraine during the 2007/2008 global food crisis within a spatial price transmission approach. Using a Markov-switching vector error-correction model, we contrast our estimation for Russia and Ukraine with Germany and the USA, two countries that did not intervene in their wheat export markets. An explicit “crisis” regime during times of export controls is exclusively identified for Russia and Ukraine. We find that export restrictions temporarily reduced the degree of integration of Russian and Ukrainian domestic markets in world wheat markets, which pushed the growers prices below their long-run equilibrium level. Further, domestic markets were disconnected from their equilibrium and market instability increased. These effects were even more pronounced and long lasting in Ukraine (export quota) than in Russia (export tax). The negative market effects discouraged private investors, thereby preventing Russia and Ukraine from maximizing their grain potential and contributing to global food security.

Stock price effects of CEO turnover of US financial institutions

We use stock price reactions of CEO turnover announcements to analyse managerial effectiveness and entrenchment within the financial sector that is characterised by a greater information asymmetry. We distinguish among different types of changes in top executives to insulate different market effects. First, tests with resignations/retirements, excluding M&A and the financial crisis, suggest effectiveness of the CEOs for their firms. Second, tests with resignations/retirements, related to M&A, indicate positive effect of the external control market. Third, forced CEO resignations/retirements show ineffective firm monitoring, and CEO deaths support managerial entrenchment. Resignations related to bankruptcy have negative market effects, and the coefficients of tests during the financial crisis are larger with similar signs.

Stock salience and the asymmetric market effect of consumer sentiment news

We document asymmetric announcement effects of consumer sentiment news on United States stock and stock futures markets. While a negative market effect occurs upon the release of bad sentiment news, there is no market reaction for the counterpart good news. This supports the “negativity effect” hypothesis. Notably, this effect seems most likely to occur in salient stocks, which is consistent with the availability heuristic.

Client Stock Market Reaction to PCAOB Sanctions Against a Big 4 Auditor*

We examine client stock market reaction to news of PCAOB sanctions imposed upon Deloitte and Touche, LLP - the first against a Big 4 auditor. The PCAOB Order against Deloitte contains three potentially value relevant pieces of information. First, it shows that Deloitte did not conduct a quality audit of Ligand’s 2003 financial statements (the “Ligand audit failure”). Second, it highlights serious problems in Deloitte’s quality control policies and procedures that go beyond the Ligand audit failure. Finally, the PCAOB Order reiterates the remedial actions Deloitte took to improve its quality control policies, which may alleviate investors’ concerns and signal improvements in the quality of the firm’s future audits. Using Schipper and Thompson (1983) methodology, we find that Deloitte (non-Deloitte) clients had a significantly negative (an insignificant) market reaction to news of the PCAOB sanctions. The results suggest that the negative effects of the sanctions outweigh the possible remedial effects of Deloitte’s corrective actions taken after the sanctions. In cross-sectional analysis using the Sefcik and Thompson (1986) portfolio weighting approach, we find a more negative reaction for Deloitte clients that are financially distressed. Our findings are consistent with both the reputation and insurance hypotheses, as in Baber et al. (1995). Since the severity of Deloitte’s quality control problems was made public for the first time by the PCAOB sanctions, we conclude that the negative market effects we observe are most likely the result of disclosure of the quality control weaknesses at Deloitte.

Psychologically Impacted Houses: Broker Disclosure Behavior and Perceived Market Effects in an Unregulated Environment

This article reports the disclosure practices of Ohio real estate licensees when dealing with a psychologically impacted house and examines the perceptions of licensees concerning the market effects associated with such housing. Ohio is similar to many other states in that licensees there are not protected by statute from liability for failing to disclose this information, nor are they required by statute to disclose it. Survey information obtained from licensees about psychologically impacted residential transactions is examined. In the sample, disclosure practices vary widely among licensees, and they report moderately negative market effects associated with psychologically impacted houses.

Changes in Lawyers' Earnings: The Impact of Differentiation and Growth in the Canadian Legal Profession

The relatively greater numbers of young, female, and salaried lawyers are said to have diminished the legal profession's control of the market for its services, and hence of its income and status. This article examines the effects on lawyers' real earnings attributable to the rapid change in size and composition of the legal profession in Canada during the 1970s. An analysis of the components of inter-temporal earnings differences, which takes account of changes in composition and in the remuneration or pay structure, shows that the unprecedented growth in lawyer supply was responsible for most of the decline in lawyers' real earnings. But lawyers who were young, female, salaried, or in government service avoided this negative market effect, while lawyers who were male, self-employed, or outside the major financial centers, bore most of the negative economic impact of the rapid supply growth.

Changes in Lawyers' Earnings: The Impact of Differentiation and Growth in the Canadian Legal Profession

The relatively greater numbers of young, female, and salaried lawyers are said to have diminished the legal profession's control of the market for its services, and hence of its income and status. This article examines the effects on lawyers' real earnings attributable to the rapid change in size and composition of the legal profession in Canada during the 1970s. An analysis of the components of inter-temporal earnings differences, which takes account of changes in composition and in the remuneration or pay structure, shows that the unprecedented growth in lawyer supply was responsible for most of the decline in lawyers' real earnings. But lawyers who were young, female, salaried, or in government service avoided this negative market effect, while lawyers who were male, self-employed, or outside the major financial centers, bore most of the negative economic impact of the rapid supply growth.