Positive Stock Market Reaction Research Articles

Do metaverse implementation announcements enhance firms’ stock market value in China? A signaling theory perspective

PurposeThe metaverse has garnered increasing attention from researchers and practitioners, yet numerous firms remain hesitant to invest in it due to ongoing debates about its potential financial benefits. Therefore, it is crucial to analyze how the implementation of metaverse initiatives affects firms’ stock market value – an area that remains underexplored in the existing literature. Additionally, there is a significant lack of research on the contingency factors that shape the stock market reaction, leaving a noticeable gap in managerial guidance on the timing and benefits of investments in the metaverse. To narrow these gaps, we examine whether and when the implementation of metaverse initiatives enhances firms’ stock market value.Design/methodology/approachBased on 73 metaverse implementation announcements disclosed by Chinese listed firms during January 2021–August 2023, we employ an event study approach to test the hypotheses.FindingsWe find that metaverse implementation announcements elicit a positive stock market reaction. Moreover, the stock market reaction is stronger for technology-focused announcements and smaller firms, or when public attention to the metaverse is higher. Nevertheless, firms’ growth prospects do not significantly alter the stock market reaction.Originality/valueThis study extends the nascent literature on the metaverse by applying signaling theory to offer novel insights into the signaling effect of metaverse implementation announcements on stock market value and the boundary conditions under which the effectiveness of the signal varies. Besides, it provides managers with important implications regarding how to tailor the investment and information disclosure strategies of the metaverse to more effectively enhance firms’ stock market value.

Firms’ voluntary climate action disclosures and stock market reaction: A BERT-based analysis of earnings conference calls in China

Climate information disclosure plays a pivotal role in fostering sustainable practices and enhancing transparency in climate risk. However, it is unclear whether firms’ voluntary climate-related disclosures effectively convey incremental information to investors. In the empirical context of Chinese listed firms, we explore the valuation effect of firms’ voluntary climate action disclosures, which is quantified from the transcripts of earning conference calls using a novel natural language model, BERT. Our results reveal that firms with more voluntary climate action disclosures experience more positive stock market reactions, indicating that investors value transparency on corporate commitment to future climate actions. The positive valuation effect of disclosures tends to be more pronounced in firms with higher disclosure quality, more green-preference investors, and higher investor attention. Moreover, we find that the positive valuation effect is achieved through enhancing corporate reputation and investor confidence. We further show that firms’ voluntary climate action disclosures exhibit a significant positive correlation with green innovations and environmental pillar scores, dispelling concerns of mere “greenwashing”. Overall, our evidence contributes to understanding the role of climate disclosures in investor assessment of firms’ climate risks and opportunities. The findings provides fresh insights for policymakers and regulatory bodies involved in shaping disclosure frameworks that promote sustainable business practices.

The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022

PurposeThis paper aims to analyze stock market reactions to announcements of regulatory and law enforcement penalties imposed on banks operating in the USA.Design/methodology/approachThis paper examines abnormal stock market returns around penalty announcements for banks operating in the USA from 2000 to 2022. The authors use a comprehensive data set of nearly 600 penalties to conduct their event study.FindingsThis paper finds evidence of positive and statistically significant abnormal returns on the day of the penalty announcement. However, the authors also observe negative and statistically significant abnormal returns days later, violating the semi-strong efficient market hypothesis.Originality/valueBy accounting for confounding events and analyzing subsamples, the authors reconcile conflicting results from prior literature that have variously shown negative, null or positive stock market reactions to penalty announcements.

Touched by Quakes: Mortality Salience and Corporate Philanthropy

ABSTRACT This study examines how natural catastrophes affect corporate philanthropic activities in China. Firms located in areas experiencing severe seismic losses increase charitable donations. The effect is stronger when firms demonstrate stronger social responsibility, operate in higher-mortality regions, and are led by female or elder CEOs, supporting the mortality salience hypothesis. We address endogeneity issues with an instrumental variable and a propensity score matching approaches. Furthermore, firms with higher charitable donations experience a more positive stock market reaction around the 2008 Wenchuan Earthquake. Overall, our findings suggest that natural catastrophes amplify financial market participants’ mortality salience and affect their economic decisions.

Measuring firm exposure to government agencies

We use textual analysis of mandatory accounting filings to develop firm-level, time-varying measures of exposure to individual government agencies including the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS). The measures vary predictably across industries and with agency-specific events such as the Sarbanes Oxley Act at the SEC and budget cuts at the IRS. The measures positively relate to undisclosed agency investigations and financial statement downloads. Firms' total exposure across government agencies negatively relates to their profitability, consistent with exposure to government agencies imposing net costs. Consistent with a causal interpretation of these results, the positive stock market reaction to the surprise election of Donald Trump, who promised to reduce the power of government agencies, positively varies with firms' exposure to government agencies. As initial applications of our measures, we demonstrate that expanded SEC oversight increases firms' stock liquidity and reduced IRS oversight decreases firms’ effective tax rates.

Impacts of digital technology innovation for social responsibility of platform enterprises on shareholder value

PurposeConsidering rapid digitalization development, this study examines the impacts of digital technology innovation on social responsibility in platform enterprises.Design/methodology/approachThe study applies the event study method and cross-sectional regression analysis, taking 168 digital technology innovations for social responsibility issued by 88 listed platform enterprises from 2011 to 2022 to study the impact of digital technology innovations for social responsibility announcements of different announcement content and platform attributes on the stock market value of platform enterprises.FindingsThe results show that, first, the positive stock market reaction is produced on the same day as the digital technology innovation announcement. Second, the announcement of the platform’s public social responsibility and the announcement of co-innovation and radical innovation bring more positive stock market reactions. In addition, the announcements mentioned above issued by trading platforms bring more positive stock market reactions. Finally, the social responsibility attribution characteristics of the announcement did not have a significant differentiated impact on the stock market reaction.Originality/valueMost scholars have studied digital technology innovation for social responsibility through modeling rather than second-hand data to empirically examine. This study uses second-hand data with the instrumental stakeholder theory to provide a new research perspective on platform social responsibility. In addition, in order to explore the different impacts of digital technology innovation on social responsibility, this study has classified digital technology innovation for social responsibility according to its social responsibility and digital technology innovation characteristics.

Does buying green pay off? Stock market reactions to green acquisitions

As sustainability trends gain momentum, more businesses seek to expand their green business portfolios by acquiring firms with green technologies or green brands. However, the financial impact of this green marketing strategy is unclear. Utilizing event study methodology and the two-stage Heckman selection model, this study investigates stock market valuations of 182 announcements about green acquisitions from US public firms between 2000 and 2018. We report several interesting findings. First, we find that green acquisitions are accompanied by positive stock market reactions. Second, the stock market reacts more favorably to acquirers with a higher level of marketing capability and a lower level of innovation capability when green acquisitions are announced. Third, industry sensitivity moderates the effects of the two aforementioned organizational capabilities on the stock market return−green acquisition relationship. We gain insight into investor responses in the context of green acquisitions through the lens of marketing and innovation capabilities. The findings enrich research in the domain of marketing−finance interface and sustainability marketing by shedding light on the short-term green acquisition–firm value relationship.

The cost of foreign ownership: Voluntary sustainability reporting and financial performance in an emerging economy

PurposeMany emerging economy firms are under foreign owners' pressure to embrace the challenges of addressing corporate social responsibility (CSR) and consider adopting sustainability initiatives. However, it is not clear how foreign ownership plays a role to enable or inhibit these emerging economy firms from translating sustainability initiatives into improved financial performance. Utilizing neo-institutional theory, the authors argue that emerging economy firms that voluntarily report sustainability gain legitimacy in the eyes of shareholders and improve stock market performance. However, emerging economy firms may not have the resources to reconcile the internal stakeholders' various legitimacy requirements to promote sustainability practices, resulting in a negative association with accounting performance. Foreign ownership attenuates the relationship between sustainability reporting and firm performance due to the different legitimacy requirements in foreign markets.Design/methodology/approachTo test the study’s hypotheses, the authors collected and analyzed a large sample of publicly listed firms between 2010 and 2016 in Taiwan where the types of foreign ownership include foreign trust funds, foreign financial institutions and other foreign legal entities. Regression analyses were conducted to investigate whether the firms that report their sustainable practices have better financial performance, including stock market performance and accounting performance. Additionally, a three-step procedure was employed to address the endogeneity issue with a binary explanatory variable.FindingsThe positive stock market reaction to the emerging economy firms' voluntary sustainability reporting supports legitimacy gained among investors. By contrast, sustainability reporting has a negative association with accounting performance due to the difficulty of reconciling different legitimacy requirements among various stakeholders in emerging economies. Further, foreign ownership, particularly the trust fund, exhibits a negative moderating effect on the relationship between sustainability reporting in aligning corporate practices with sustainable development goals (SDGs) and the company's stock market performance.Originality/valueBy examining the less tested contingent role played by foreign ownership in the emerging economy firms' sustainability reporting, the authors provide insights into the influence exerted by different types of foreign ownership on firms' financial performances beyond previous studies that focus on family ownership, state ownership, or managerial ownership in emerging economies. The findings shed light on corporate sustainability strategy and foreign direct investment policies for an emerging economy.

Buzzword or fuzzword: an event study of the metaverse in the Chinese stock market

Purpose“Metaverse” has become a buzzword in the Chinese stock market. However, it remains unclear whether a firm's metaverse-related announcements will elicit positive stock market reactions. Whether and how stakeholder reactions are influenced by a firm's metaverse-related readiness also needs to be further explored. This study aims to discuss the aforementioned objective.Design/methodology/approachThe authors derived a set of factors based on readiness theory and business ecosystem literature and extend them into the context of the metaverse. The authors used a sample of 642 Chinese listed firms in 2021 to investigate the hypotheses through the event study.FindingsThe study’s findings show that metaverse coverage induces a positive stock market reaction, but it is subject to three moderating effects. The authors introduce the novel concepts of IT readiness, ecosystem readiness and digital infrastructure readiness as the moderators. Stakeholders perceive metaverse announcements as overhyped, and stock prices do not fluctuate significantly after a metaverse announcement when the listed firms are not ready to embrace the metaverse.Originality/valueThis study is one of the first that introduces the event study method into the metaverse research, and it reveals that different levels of readiness influence stakeholders' evaluations and reactions to corporate metaverse coverage. This provides empirical evidence on metaverse development in China from the stock market's perspective.

Effect of blockchain technology initiatives on firms’ market value

Despite blockchain’s potential to transform corporations by providing new ways of organizing business processes and handling information, extant research pays inadequate attention to how and under what conditions blockchain technology provides additional financial value for shareholders. Drawing on the efficient market hypothesis and signaling theory, we examined the relationship between firms’ blockchain use, development announcements, and stock market reactions. We used the event study methodology to analyze a sample of blockchain projects initiated by US firms between 2016 and 2019. The sample contains 114 firm-event observations. The findings show that the average abnormal return over a 2 days event period (including the day of the announcement and the day after the announcement) was positive. This positive stock market reaction is even more substantial when firms announce blockchain projects that focus on saving cost or time. Our findings also indicate that blockchain announcements tend to elicit more positive market reactions from smaller firms. We analyzed 249 firm-event observations containing firms from around the world and conclude that blockchain technology has a non-significant long-term impact on operating performance. The contingency approach adopted in our research provides advice for selecting the right mix of blockchain investment initiatives that is most suitable for a given organizational context.

Firms’ responses to the COVID-19 pandemic

The COVID-19 pandemic requires firms to adequately respond. In this study, we first explore in our empirical data how firms responded to the COVID-19 crisis and identify five tactical response types, operational, digitalization, financial, supportive, and organizational responses. Furthermore, our findings indicate that responses vary in scope; Some firms act on their own, while others engage in collaborations. Finally, we find that the response angle is different across firms, as some firms leverage potential and others primarily mitigate risk. Second, we follow an event study design to measure the financial implications of these responses. We find that responses to the COVID-19 pandemic generally entail a positive stock market reaction. Financial and digitalization responses, as well as risk mitigation responses, are consistently evaluated positively. We discuss our findings in context of different theoretical lenses, substantiating the emerging literature on the COVID-19 crisis, and the established literature on crisis response management.

Industry 4.0 technologies: Empirical impacts and decision framework

AbstractIndustry 4.0 technologies have been regarded as powerful means to enhance a firm's competitiveness in the Internet of Things environment. However, implementing Industry 4.0 technologies calls for considerable capital expenditure and might interrupt normal production in the short term. This study conducts an empirical analysis of the impact of investing in Industry 4.0 technologies based on a sample of 563 investment announcements of publicly listed firms on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2013 to 2018. Using the event study method, we find empirical evidence that these investment announcements lead to positive stock market reactions and improved financial performance. In particular, we empirically evaluate firms’ short‐ and long‐term stock prices and financial measures by considering the type of investments (i.e., digital or physical investments), whether the investment is product‐oriented or manufacturing process‐oriented, and whether the technologies are applied within a firm or across the supply chain. Our empirical findings hold true when a firm's strategic decision is accounted for and remain robust through various tests. Furthermore, we propose a decision framework for firms to balance the tradeoff between short‐term disruption and long‐term benefits resulting from an investment in Industry 4.0. Specifically, we develop a two‐period model and investigate when and to what extent a firm should invest in Industry 4.0 technologies. Empirical and modeling analyses provide managerial insights for firms that grapple with the net benefit of investment in Industry 4.0.

Stock market reactions to COVID-19 shocks: do financial market interventions walk the talk?

PurposeFollowing the COVID-19 outbreak, various economies imposed different financial interventions as part of initiatives to cushion their stock markets from deteriorating performance. Our article examines the effectiveness of these interventions in protecting stock markets during the pandemic.Design/methodology/approachThe authors employ Panel Vector Autoregression to model the magnitude and timing of shocks from COVID-19 to stock markets. The fixed effects regression is then utilized to assess the role of financial interventions in protecting stock markets during COVID-19. The study uses daily stock index returns as well COVID-19 containment measures stringency index data from 39 countries ranging from 2nd January 2020 to 30th September 2021.FindingsOur findings firstly reveal a significant positive stock market reaction to country-level containment measures stringency but only during the first wave of COVID-19. We secondly show that stock market functioning interventions that include short selling bans and circuit breakers amplify the positive effects of COVID-19 containment measures stringency on stock market performance.Research limitations/implicationsThe authors stress the need for policymakers and regulators to timely intervene in protecting economies and stock markets during crises such as COVID-19 in order to reduce panic among investors. Moreover, investors should adjust their portfolios by investing in stocks from countries that have proper financial market interventions in place.Originality/valueDespite growing body of literature on COVID-19 and stock market performance, there is limited evidence on the role of financial sector interventions to cushion stock markets during tumultuous conditions caused by the pandemic.

When Blockchain Creates Shareholder Value: Empirical Evidence from International Firm Announcements

Blockchain is a prominently discussed technology in operations and supply chain management and firms increasingly engage in blockchain initiatives. Yet, an understanding of the technology's financial value remains elusive. Based on 175 firm announcements between 2015 and 2019, we conduct an international event study to estimate the impact of blockchain initiatives on the market value of the firm. We empirically demonstrate that blockchain announcements are associated with a significant average abnormal return of 0.30% on the announcement day, and that there are indications of positive long‐term effects on shareholder value. We further demonstrate how blockchain use case, project, and firm characteristics affect the stock market reaction. Specifically, we find that the stock market reaction to blockchain announcements is less positive when blockchain is used to trace physical objects or to share sensitive data, providing empirical evidence for the risk associated with current challenges in the design of blockchain use cases. Our results also suggest that the involvement of an external information technology service provider in a blockchain project attenuates the positive stock market reaction. Interestingly, more innovative firms do not experience a stronger stock market reaction to blockchain announcements. Leveraging the international scope of our sample, we further shed light on how the firm's competitive (i.e., industry factors) and macro environment (i.e., country factors) affect the stock market reaction. Our findings indicate that the industry's R&D intensity and the country's data restriction level play a crucial role in driving the value attributed to blockchain initiatives.

Effect of intelligent logistics policy briefings on shareholder value: evidence from Chinese logistics companies

ABSTRACT This paper investigates the effects of intelligent logistics policies briefings (ILPBs), which are a kind of special press conference, on the shareholder value of the 149 listed logistics companies in China. For macro factors, we find that ILPBs will result in a positive stock market reaction, and the mean abnormal return on the event day is 0.728%. For micro factors, an ILPB has a more positive impact on the market value of larger enterprises. The business types do not affect the degree of market reaction. For the characteristics of policy briefings, the market reaction will be more positive as the proportion of the intelligent logistics content in the conference increases. Policy briefings with two different topics will result in more positive stock market reactions than those with one. Finally, we compare the market reactions of ILPBs with those of official policies.

Threat of hostile takeover and the cost of seasoned equity offerings

PurposeThis paper investigates the relationship between a firm's susceptibility to a hostile takeover and investors' reactions to a seasoned equity offering (SEO).Design/methodology/approachThe study applies ordinary least squares (OLS) with fixed effects regression analyses to a sample of 2,517 observations from US listed companies. Event study methodology was employed to capture market reactions to the announcement of newly issued stocks. To achieve cross-sectional analyses, time variations in takeover laws allowed us to perform the desired tests across two decades of data.FindingsThe results suggest that investors react positively to the announcement of an equity offering when the threat of hostile takeover is higher. The magnitude of positive stock market reactions varies over two decades due to time series variations in takeover laws. Furthermore, the findings show that a higher hostile takeover index (HTI) score reduces investors' concerns about the inefficient usage of proceeds in acquisitions.Practical implicationsThe results demonstrate that the corporate takeover legal environment provides an important external governance mechanism through which investors' confidence increases during an SEO event. The study's empirical evidence implies that the extent of external disciplinary mechanism plays a significant role in reducing investors' uncertainty about the misuse of raised capital.Originality/valueThe exogenous fast-evolving legal environment surrounding the takeover market in the United Status allowed our study to bypass the endogeneity concerns in measuring governance strength. From the review of prior literature, this paper appears to be the first to use HTI scores to examine investors' reactions to a corporate announcement.

Institutional Distance, Inter-Country Relationship, and Cross-Border M&A Performance of EMNEs

How do the country-level institutional difference and inter-country relationship influence the value creation of cross-border mergers and acquisitions (M&As) by emerging market multinational enterprises (EMNEs)? Drawing on institutional-based view, this study investigates how the regulatory distance between home and host country affects stock market reactions to cross-border M&As announcement by EMNEs, using a sample of 1083 deals from 2003-2018 by Chinese listed firms. Our findings indicate that (1) The announcement of cross-border M&As will generate positive stock market reaction for EMNE acquirers. (2) M&A direction as well as regulatory distance matters, EMNEs are more likely to achieve better stock market reaction when they acquire targets from regulatory similar countries, but will gain less cumulative abnormal returns when the targets are from more institutionally mature countries, comparing to institutionally weaker ones. (3) Inter-country relationship can mitigate the negative influence of regulatory distance. EMNEs’ acquiring targets from ‘One Belt One Road’ (B&R) countries are more likely to bring about better stock market reactions in spite of the regulatory distance.

Effect of intelligent logistics policy on shareholder value: Evidence from Chinese logistics companies

This paper empirically investigates the effects of intelligent logistics policies (ILPs) on shareholder value of the 149 listed logistics companies from 2013 to 2018 in China. The research shows that ILPs will result in a positive stock market reaction, and this effect is increasing along with the increase of policy contents related to intelligent logistics or the decrease of company service breadth. The market reaction will be affected by the way that policies are issued and type of company. The logistics service providers are more positive when their financial performances are better, while the opposite result is observed for logistics equipment manufacturers.

The pricing of European non-performing real estate loan portfolios: evidence on stock market evaluation of complex asset sales

Recent empirical evidence raises doubt about the ability of financial market participants to generate information efficient valuations for capital market instruments whose cash flows are related to residual claims and dependent on real estate income. We contribute to this literature with the examination of value implications of non-performing loan (NPL) divestitures in the banking industry during the period 2012–2018. In a first step, we provide descriptive statistics of the European NPL market, which lacks transparency and publicly available basic information on portfolio size and components. We then analyze wealth effects of distressed loan sale announcements for a uniquely large transaction database with 317 NPL deals, which is largely driven by real estate collateral. Our results show positive stock market reactions for vendor banks following NPL divestitures that tend to be driven by real estate collateral and a size effect.

Market reactions to CSR news in different industries

PurposeBased on the premises of the institutional theory, in this paper, we explore the effects that the media coverage of positive and negative Corporate Social Responsibility (CSR) news have on the stock market value of companies in diverse industries.Design/methodology/approachUsing a sample of 195 online articles published in the most important Spanish business newspaper, we implement an event study and a regression analysis.FindingsThe findings show that positive and negative CSR news, usually, have significant impacts on the stock market value of companies. Specifically, the market reaction is stronger under the announcement of negative news in all industries (i.e. basic, energy, finance and goods and services), although positive news also cause significant positive stock market reactions in the finance and basic industries.Originality/valueAlthough the media plays an indispensable role in the dialogue around CSR, much of the research focused on the role of the media on the CSR-CFP link does not consider how the industry variable can affect the abnormal stock returns derived from CSR news. This research contributes to this gap in the literature by exploring the differences that exist in the stock market reactions to CSR news based on the industry in which the companies operate.