Positive Cumulative Abnormal Returns Research Articles

The fading stock market response to announcements of bank bailouts

We analyze the effects on bank valuation of government policies aimed at shoring up banks’ financial conditions during the 2008–2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks with negative ones. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish in Europe, whereas they weaken in the United States. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.

The Regulation of Non-GAAP Disclosure: The Effect of New Compliance and Disclosure Interpretations by the SEC in 2010

The U.S. Securities and Exchange Commission (SEC) issued new a Compliance and Disclosure Interpretation (CDI) in 2010, relaxing the stringent enforcement requirements of Regulations G and S-K. In this paper, we investigate whether this new, non-binding, SEC staff interpretation is an economically significant event and whether they allowed for a change in a firm’s voluntary disclosure. Using hand-collected non-GAAP earnings disclosure for S&P500 firms from 2006 to 2013, we find significantly positive 3-days cumulative abnormal returns on the announcement of new CDI announcement only for firms with informative non-GAAP reporters prior to the announcement, suggesting investors anticipate the benefits of relaxed interpretive guidance to be limited to informative non-GAAP reporters and investors view SEC staff interpretations as important regulatory actions that affects managers’ behaviors. We also find that managers more frequently use aggressive non-GAAP reporting in the post-CDI period, especially when managers have incentives to report non-GAAP earnings more aggressively and when the governance system is poor. This paper contributes to the voluntary disclosure and regulation literatures by providing empirical evidence that SEC interpretative guidance is economically important events and effective in shaping firms’ disclosure practices.

The banking bailout of the subprime crisis: Was the bang worth the buck?

We employ event study methodology to examine government policies aimed at rescuing banks from the effects of the 2008–2009 financial crisis. Announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks were associated with negative cumulative abnormal returns. The effects of foreign general announcements spilled over across different areas and were perceived by home-country banks as subsidies to foreign banks. Specific announcements produced effects consistent with other banks being crowded out for government resources. Multiple specific announcements exacerbated banks’ moral hazard. Findings suggest that individual institutions were reluctant to seek public assistance.

Shareholder activism in family‐controlled firms in Malaysia

PurposeThe purpose of this paper is to investigate the impact of shareholder activism led by the Minority Shareholder Watchdog Group (MSWG) on the performance of family‐controlled firms in Malaysia from 2005 to 2009.Design/methodology/approachThe paper uses event study methodology to calculate abnormal returns for the sample and control firms.FindingsThe paper finds significant positive cumulative abnormal returns of at least 0.5 percent for the targeted family firms, during the event window of [−1, 0] and [0, +1], as a result of MSWG engagement. There is a significant positive cumulative abnormal return of 1 percent for the firms where family control is less than the threshold level of 33 percent. It is interesting to note that MSWG engagements do not have consistent positive impact on the abnormal returns over the years. There are significant differences between the performance of MSWG targeted family‐controlled firms and non‐targeted family‐controlled firms after one year of MSWG intervention.Research limitations/implicationsThe results show that MSWG‐led shareholder activism does have an effect on the share returns of the family‐controlled firms. These results imply that family‐controlled firms agree with the MSWG on those matters that improve the bottom‐line results.Originality/valueThe authors argue that this is the first study to examine MSWG engagements with family‐controlled firms in Malaysia.

International Cross-Listing and Shareholders’ Wealth

This study evaluates the relationship between international cross-listings and shareholders’ wealth across different host markets and across time. For a sample of cross-listings by European companies in the US, in the UK, and within Europe, the findings show that US and UK cross-listings, on average, result in positive cumulative abnormal returns around the announcement of cross-listing. No such evidence exists for the rest of European cross-listings. In addition, the Sarbanes-Oxley Act (SOX) of 2002 affects negatively the wealth benefits of US cross-listings, while wealth creation around UK cross-listings is primarily concentrated in Alternative Investment Market listings rather than Main Market listings. There is no evidence that the introduction of the Euro affects the wealth effects of cross-listings within the Eurozone. Finally, this study provides evidence on the relative importance of alternative theories on the wealth effects of cross-listing, including market segmentation, legal bonding, liquidity, investor recognition, proximity preference, market timing and business strategy theories, after considering the effect of the introduction of the Euro and the adoption of SOX. The results show that significance of the alternative theories varies across host markets and over time.

REIT Dividend Policies and Dividend Announcement Effects During the 2008–2009 Liquidity Crisis

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008–2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower market‐to‐book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going‐concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post‐announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post‐announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.

Wealth Effects Of Bank Mergers And Acquisitions In Asian Emerging Markets

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoHeader"><span style="color: black; font-size: 10pt; mso-fareast-font-family: SimSun; mso-themecolor: text1; mso-fareast-language: ZH-CN;"><span style="font-family: Times New Roman;">Through analysis of stock responses to two different types of banking M&A deals, specifying M&A and diversifying M&A, we find that specifying M&A deals incur positive cumulative abnormal returns (CAR) in both two-day and three-day windows without controlling for firm size. Diversifying M&A deals incur positive CAR in two different event windows. However, the differences between the two windows are not statistically significant. Contrary to previous studies on M&A in the banking industry of developed markets, the results of our study indicate that markets do not distinguish among various types of M&A deals in the banking industry around the date of announcement. Diversifying M&A generate positive three-day CARs but they are not significantly better than specifying M&A.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

The (In)Effectiveness of Announcements of Banking Bailouts

We analyze the effectiveness of government policies aimed at shoring up banks’ financial conditions during the 2008-2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns whereas announcements directed at specific banks with negative ones. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.

Catastrophes and Insurance Stocks – A Benchmarking Approach for Measuring Efficiency

AbstractThis study uses the numeraire portfolio to benchmark insurance stock returns as a natural measure for detecting abnormal insurance stock returns from catastrophic events. The assumptions underlying the efficient markets hypothesis using a numeraire denominated returns approach hold for catastrophic insurance events whereas other more traditional methods such as the market model and Fama-French three factor model often fail, typically due to the accumulation of estimation errors. We construct a portfolio of Australian insurance firms and observe the market reaction to major insured catastrophic events. Using the numeraire denominated returns approach we observe no particular trend in the cumulative abnormal returns of insurance securities following a catastrophic event. Using both the traditional market model and the Fama-French three factor model however, we observe significantly positive cumulative abnormal returns following an insured catastrophic event. The errors inherent in the market model and three factor model for event studies are shown to be eliminated using the numeraire denominated returns approach.

An Empirical Note on US Stock Split Announcements, 2000-2009

This article analyses the market reaction to stock splits announcements, using a unique US sample over the period 2000 to 2009. Our event study finds a significantly positive Cumulative Average Abnormal Return (CAAR) around the announcement date. Liquidity increases lead to higher stock price changes, which supports the liquidity improvement hypothesis. Further, firm size and abnormal returns are inversely related, which is in line with the attention hypothesis.

The Banking Bailout of the Subprime Crisis: Big Commitments and Small Effects?

This paper examines government policies aimed at rescuing banks from the effects of the financial cris is of 2008-2009. Governments responded to the crisis by guaranteeing bank assets and liabilities and by inje cting fresh capital into troubled institutions. We employ event study methodology to estimate the benefits o f government interventions on banks. Announcements directed at the banking system as a whole were associ ated with positive cumulative abnormal returns whereas announcements directed at specific banks with negati ve ones. The effects of foreign general announcements spilled over across different areas and were percei ved by home-country banks as subsidies boosting the competitive advantage of foreign banks. Specific announce ments produced effects that were consistent with other ba nks being crowded out for government resources. Multiple specific announcements exacerbated the extent of ba nks’ moral hazard. Results were sensitive to the in formation environment. Findings are consistent with the hypot hesis that individual institutions were reluctant t o seek public assistance.

Market Reactions to Audit Committee Director’s Gender: Evidence from US-Traded Foreign Firms

This study investigates whether the appointment of a female to the audit committee of a foreign issuer in the US is positively associated with subsequent market price reaction. We hypothesize that female members on the audit committee can strengthen corporate governance by their conservative and ethical qualities. Accordingly, such appointments deliver a positive message to capital market participants. In order to observe the impact of audit committee gender diversity on foreign firms, we include all audit committee appointments of US-traded foreign firms from 2002 to 2009. We find that the appointment of female audit committee members has significant positive cumulative abnormal returns compared to the appointment of male audit committee members.

The Role of R&D in Cross-Border Mergers & Acquisitions

This study examines the synergy and internalization hypotheses for international acquisitions using a sample of Australian companies with particular focus on the relationship between the synergistic gains and R&D capabilities of both the acquirer and target. We focus on three research questions: (1)Are significant cumulative abnormal returns observed for the Australian acquirers on announcement of cross-border acquisitions? (2)Are significant cumulative abnormal returns observed for R&D intensive Australian acquirers during cross-border acquisitions? and (3) Does R&D intensity explain cross sectional variation in wealth effects on announcement of cross-boarder acquisitions? We find that, overall, significant and positive cumulative abnormal returns are observed for the Australian acquirers in cross-border acquisitions, with the most pronounced effect apparent for R&D intensive Australian acquirers. Consistent with previous studies, target firm shareholders experienced positive and significant abnormal returns. Taken together, these results indicate the existence of synergistic gains, which are shared between acquirer and target shareholders. When we regress the target firms’ characteristics on acquirers CARs we find strong and consistent evidence of a positive influence of targets firms R&D intensity on acquirers CARs, suggesting shareholders’ wealth increases due to the increasing scale for which the target companies R&D intangible assets are applied. However, when target CARs are regressed on acquirers’ financials to explore whether acquirer characteristics can explain target wealth gains, acquirer firms’ R&D intensity is found to have a significant and negative effect of target firms’ CARs.

Banks' Great Bailout of 2008-2009

This paper examines government policies aimed at rescuing banks from the effects of the financial crisis of 2007-2009. To delimit the scope of the analysis, we concentrate on the fiscal side of interventions and ignore, by design, the monetary policy reaction to the crisis. The policy response to the subprime crisis started in earnest after Lehman’s failure in mid September 2008, accelerated after February 2009, and has become very large by September 2009. Governments have relied on a portfolio of intervention tools, but the biggest commitments and outlays have been in the form of debt and asset guarantees, while purchases of bad assets have been very limited. We employ event study methodology to estimate the benefits of government interventions on banks and their shareholders. Announcements directed at the banking system as a whole (general) and at specific banks (specific) were priced by the markets as cumulative abnormal rates of return over the selected window periods. General announcements tend to be associated with positive cumulative abnormal returns and specific announcements with negative ones. Our results are also sensitive to the information environment. Specific announcements tend to exert a positive impact on rates of return in the pre-crisis sub-period, when announcements are few and markets have relative confidence in the “normal” information flow. The opposite takes place in the turbulent crisis sub-period when announcements are frequent and markets mistrust the “normal” information flow. These results appear consistent with the observed reluctance of individual institutions to come forth with requests for public assistance.

The long-term share price reaction to Black Economic Empowerment announcements on the JSE

ABSTRACTBlack Economic Empowerment has been one of the South African government's primary mechanisms for addressing the economic imbalances of the apartheid era. Voluntary sector “charters”, and more recently legislation, have required largely white owned business enterprises to become more inclusive across key areas of economic empowerment, including the provision of minimum levels of ownership for black shareholders.This research employs event study methodology to examine the long-term impact on the share prices of listed companies after announcements are made relating to black empowerment deals which impact equity ownership. The research examines 118 announcements and finds a positive cumulative abnormal return of around 10% after the first year. The positive result is confined to smaller companies, with market capitalisation of less than R3, 5bn, whilst large companies experience a marginally negative cumulative abnormal return. The results also show that those companies which made BEE announcements prior to May 2005 (‘first-movers’) did somewhat worse than those who followed. Finally, the results were found to be consistent for companies making further BEE related announcements, although the cumulative abnormal returns were lower at around 6%.

Rescuing Banks from the Effects of the Financial Crisis

This paper examines government policies aimed at rescuing banks from the effects of the great financial crisis of 2007-2009. To delimit the scope of the analysis, we concentrate on the fiscal side of interventions and ignore, by design, the monetary policy reaction to the crisis. The policy response to the subprime crisis started in earnest after Lehman’s failure in mid September 2008, accelerated after February 2009, and has become very large by September 2009. Governments have relied on a portfolio of intervention tools, but the biggest commitments and outlays have been in the form of debt and asset guarantees, while purchases of bad assets have been very limited. We employ event study methodology to estimate the benefits of government interventions on banks and their shareholders. Announcements directed at the banking system as a whole (general) and at specific banks (specific) were priced by the markets as cumulative abnormal rates of return over the selected window periods. General announcements tend to be associated with positive cumulative abnormal returns and specific announcements with negative ones. General announcements exert cross-area spillovers but are perceived by the home-country banks as subsidies boosting the competitive advantage of foreign banks. Specific announcements exert spillovers on other banks. Our results are also sensitive to the information environment. Specific announcements tend to exert a positive impact on rates of return in the pre-crisis sub-period, when announcements are few and markets have relative confidence in the “normal” information flow. The opposite takes place in the turbulent crisis sub-period when announcements are the order of the day and markets mistrust the “normal” information flow. These results appear consistent with the observed reluctance of individual institutions to come forth with requests for public assistance.

Influence of FHC acquisition announcements on target firm stock value – Taiwan as a case

An innovative financial strategy of the government involves establishing financial holding companies (FHCs) in Taiwan. This investigation considers the stock values of the FHC target firms, and applies the Market Model of Event Study Method to determine whether the stock values of the target firms will be affected by FHC acquisition announcements. The results indicate that the target firms had markedly abnormal average returns on the announcement day (t = 0), before and after the announcement day (t = –1, t = +1) and some trading days during the event period. The target firms exhibited positive 3.46% significantly cumulative abnormal average returns during (–3, +3), but during other event periods ( – 10, +10), (–20, +20) and (–30, +30) the cumulative abnormal average returns were not significant. Furthermore, the target firms displayed 11.98% significant positive cumulative average abnormal returns during (–30, –1) but 8.72% significant negative cumulative abnormal average returns during (+1, +30), and 17.84% significant negative cumulative abnormal average returns from the announcement day to the stock transformation date. The results of this work provide a good reference to help investors make decisions regarding selling, buying or holding FHC stocks.

The Long-Term Share Price Reaction to Black Economic Empowerment Announcements on the Johannesburg Securities Exchange

Black Economic Empowerment has been the South African government’s primary mechanism for addressing the economic imbalances of the apartheid era. Voluntary sector “charters”, and more recently legislation, have required the largely white owned business enterprises to become more inclusive across key areas of economic empowerment, including the provision of minimum levels of ownership for black shareholders. This research employs event study methodology to examine the long-term impact on the share prices of listed companies after announcements are made relating to black empowerment deals which impact equity ownership. The research examines 118 announcements and finds a positive cumulative abnormal return of around 10% after the first year. This result is confined to smaller companies, with market capitalisation of less than R3,5bn, whilst large companies experience a marginally negative cumulative abnormal return. The results also show that those companies who made BEE announcements prior to May 2005 (‘first-movers’) did somewhat worse than those who followed. Finally, the results were found to be consistent for companies making further BEE related announcements, although the cumulative abnormal returns were lower at around 6%.

Dividend Initiations by High-Tech Firms

We study the stock price and trading volume reactions to dividend initiations by high-tech firms relative to those by non-high tech firms. We find significant positive cumulative abnormal returns and abnormal trading volume for both high-tech and non-high tech firms surrounding dividend initiations. However, when we control for variables such as size and dividend yield, stock returns and trading volume around dividend initiations are higher for high-tech firms than for non-high tech firms. We also find evidence that stock returns and trading volume for high-tech firms are higher with increases in liquid assets, although the volume reaction to increases in liquid assets is stronger than the return reaction, perhaps indicating clientele shifts. Overall, our findings convey stronger investor reaction to dividend initiations by high-tech firms, especially those with sufficient liquid assets.

Profit opportunities from successive analysts' revision of stock grading status

This study examines whether investors can still profit from successive financial analysts' recommendations announced within the same business week. Using a dataset sample of 230 stocks dated from January 1998 till August 2000, our findings indicate that successive upgrades (downgrades) revelation resulted in significant positive (negative) cumulative abnormal returns for a whole week, suggesting extended market reaction to these announcements. Moreover, it seems that the negative news projected by successive downgrades had stronger absolute abnormal returns than the upgrades, suggesting that the market could not predict the change in grades. In the case of opposite successive recommendations (i.e. downgrades followed by upgrades, or upgrades followed by downgrades), the downgrading effect appeared to surmount the positive market reaction to the upgrades. Therefore, integrating subsequent recommendations could reveal clearer investment value for analysts' recommendations, and deserves further consideration when setting portfolio strategies.