Positive Stock Price Reaction Research Articles

Impact of green bond issues on Euronext firms’ stock abnormal returns

Climate change is forcing countries to take strategic measures to reduce the negative impact on future generations. In this context, sustainable finance has played a key role in sustainable development since the establishment of environmental, social and governance principles. The underlying market has developed rapidly since its inception, with green bonds being the most prominent instrument. This article aims to study the impact of green bond issues on the abnormal stock returns of stocks listed on the main Euronext indices. The sample includes 58 issues carried out between 2014 and 2022 by 21 different firms listed on the AEX (Netherlands), BEL 20 (Belgium), CAC 40 (France), ISEQ 20 (Ireland), OBX (Norway) and PSI (Portugal) indices. The methodology follows the procedures of the event study using the market model. The results show significant positive stock price reaction on the issue date. After the abnormal losses just before the issues, suggesting the reserves of this consolidating market, abnormal gains persisted for over a week, providing evidence against the weak efficiency Euronext’s financial markets. The findings are useful for policy makers and entrepreneurs to promote innovative initiatives that encourage the financing and development of environmentally sustainable infrastructures.

Do Investors Value Workforce Gender Diversity?

We examine whether investors value workforce gender diversity. Consistent with the view that investors believe workforce gender diversity can be valuable in major firms, we use event studies to demonstrate that U.S. technology firms and financial firms experience more positive stock price reactions when it is revealed that they have relatively higher (versus lower) workforce gender diversity numbers. For instance, we find that Google’s revelation of relatively low workforce gender diversity numbers triggered a negative stock price reaction, whereas eBay’s revelation of relatively high workforce gender diversity numbers triggered a positive stock price reaction. These stock price reactions are both economically and statistically significant; for example, we estimate that if a technology firm had revealed gender diversity numbers that were one standard deviation higher, its market valuation would have increased by $1.11 billion. Corroborating this plausibly causal field evidence, we also find positive investor reactions to workforce gender diversity in randomized experiments using Prolific participants with investing experience; these reactions seem to be underpinned by investors’ beliefs about potential upsides of diversity for the firm (e.g., reduced legal risks; increased creativity) but not by investors’ beliefs about potential downsides of diversity for the firm (e.g., increased conflict). Our findings highlight the importance of understanding investors’ intuitions or beliefs about major organizational phenomena such as workforce gender diversity. Our results also point toward a new type of business case for diversity, driven by investors: if major firms had more workforce gender diversity, investors may “reward” them with substantially higher valuations. Funding: This research is supported by NUS (National University of Singapore) Startup Grant WBS A-0003900-00-00 to D. P. Daniels.

Impact of venture capital holding on firm life cycle: Evidence from IPO firms

This paper examines the impact of VC ownership beyond the IPO listing on important and consequential corporate decisions in a firm's lifetime. We find that VC funds delay the initiation of dividends by approximately two years, delay the use of external growth strategies, and postpone introduction to the corporate bond market. These results are consistent with the view that VC funds extend the growth phase of the firm. We show that their presence at the time of these decisions leads to positive stock price reactions, suggesting that they provide a certification effect that signals continued growth opportunities, and that VC certification is not limited to the IPO listing.

Cash shortfall, SEO offer size, and SEO announcement returns

We examine the announcement returns of 3483 seasoned equity offerings (SEOs) during the 1996–2018 period. Although there is a significant decline in SEO announcement returns, we show that cash shortfall in the year before SEO has a positive impact on SEO announcement returns. By matching SEO offers sizes and cash shortfalls, we also find that negative announcement-period returns become positive when SEO offer size is determined in concert with cash shortfall. Patterns of long-run abnormal firm performance after SEO announcements are consistent with those we document for the announcement-period returns. Our results suggest that cash shortfall in the year before SEO as indication of funds needs mitigates agency spending of SEO proceeds, and thus, the market welcomes the SEO announcement with positive stock price reactions.

The Value of the Capital Market Development-Bursa Research Scheme's (CBRS) Recommendation Changes in

This study analyses the changes in analyst recommendations in the Malaysian stock market from 2010 to 2018. Using samples of 668 upgrade recommendations and 495 downgrade recommendations, this study employs event study methodology to examine price performance by predicting abnormal returns using the market model. The findings indicate that significant positive stock price reactions occur following upgrade recommendations and significant negative stock price reactions occur following downgrade recommendations over a short-term and up to six-month period. Further analysis reveals no statistically significant difference in performance between analysts who are participants of the Capital Market Development Fund – Bursa Research Scheme (CBRS) and those who are not. This finding implies that, despite the significant market reaction to both upgrade and downgrade recommendations, CBRS’s financial analysts do not provide better analysis than those of non-CBRS analysts.

Corporate Green Bond and Stock Price Reaction

The aim of this paper is to investigate the investors’ reaction to environmental actions taken by companies such as the issues of “green bond”. We conduct an event study around the announcement of green bond issuances for all publicly traded companies in the World in the period 2013-2019 (the largest period in literature on this field). Using CARs, we investigate the stock price behavior to green bond issues for 414 listed companies and we demonstrated significant stock price increases around the announcement date of first-time green bond issues. For second issues, the positive stock price reaction to eco-friendly initiatives decreases while it completely disappears for the subsequent issues. From the management perspective, green bond issue seems an eco-friendly action with decreasing marginal benefits, because after the first issue, the market is already aware about the firm’s commitment to green projects.

The Impact of Venture Capital Holding on the Firms Life-cycle: Evidence from IPO Firms

Venture capital firms often continue to stay as shareholders and on the board of directors of their investee companies even after they have gone public. This paper examines the impact of venture capital ownership beyond the IPO listing on important consequential, corporate decisions in a firm's lifetime, including time to dividend initiation. Using a sample of 1,409 US firms listed between 2000 and 2017, we find that venture capital firms delay the time to initiate dividends by approximately two years. The presence of venture capital firms further delays the use of external growth strategies (through acquisitions) and postpones the introduction to the corporate bond market while relying more quickly on seasoned equity offerings. Several robustness checks are performed, including controlling for possible reverse causality. These results are consistent with the view that venture capital firms extend the growth phase of the firms' life-cycle prior to becoming a mature firm. We further show that the presence of VC funds in the firm at time of these decisions leads to positive stock price reactions, suggesting they offer a certification effect for continued growth opportunities.

Social media posts and stock returns: The Trump factor

PurposeThis paper explores the effects of US President Donald Trump's Twitter messages (tweets) on the stock prices of media and non-media companies.Design/methodology/approachThe authors’ empirical analysis considers all Twitter messages posted by Donald Trump from May 26, 2016 (the date he passed the threshold of 1,237 delegates required to guarantee his presidential nomination) to August 30, 2018. The authors accessed President Trump's tweets through http://www.trumptwitterarchive.com, which provides links to all Twitter messages the President has ever posted. Of the 6,983 presidential tweets during our sample period, the authors select 513 messages that mention companies that are publicly traded in the United States for this study. The selected messages are then classified as having a positive, neutral or negative sentiment. The authors employ a series of univariate and multivariate tests as well as Heckman two-step regressions and partial least squares regressions to examine the effect of the President's tweets on the stock prices of the firms he tweets about.FindingsFor media firms, the authors find that positive tweets have a pronounced positive stock price impact, whereas negative and neutral tweets have little or no effect. For non-media firms, the authors observe the opposite: negative tweets tend to be associated with significant stock price declines, whereas neutral and positive tweets incur weakly positive stock price reactions. To a large extent, these stock price declines reverse on the following day. The authors further find that the President's reiteration of information that is already known by the market incurs an additional stock price reaction. The President's attitude towards the news appears to play a major role in this context.Originality/valueThe authors contribute to the literature by offering various new insights regarding the effect social media has on the stock markets. In addition, this paper expands the emerging strand of literature that explores how President Trump affects the stock prices of firms he tweets about. This paper differs from prior studies in this area by considering a broader range of tweets, by controlling for potential selection biases, by differentiating between Trump's tweets about media and non-media firms and by exploring the impact of “old” vs “new” news based on whether the President repeats information that is already known to the market. If social media posts by single influential people are found to affect markets, they may create trading opportunities for investors and financial managers and risk arbitrage opportunities for arbitrageurs. In the political science field, the findings of this research provide valuable insights into how politicians can employ social media platforms to affect the public, and the differential influence of nominees and politicians in office. Finally, our study gives corporations that wish to back a certain campaign or a candidate in an election a better idea of the possible risks and benefits of their actions, considering that candidates or politicians could post negative messages on social media platforms targeting companies that backed their opponents.

Dancing with activists

An important milestone often reached in the life of an activist engagement is entering into a “settlement” agreement between the activist and the target's board. Using a comprehensive hand-collected data set, we analyze the drivers, nature, and consequences of such settlement agreements. Settlements are more likely when the activist has a credible threat to win board seats in a proxy fight and when incumbents’ reputation concerns are stronger. Consistent with incomplete contracting, face-saving benefits, and private information considerations, settlements commonly do not contract directly on operational or leadership changes sought by the activist but rather on board composition changes. Settlements are accompanied by positive stock price reactions, and they are subsequently followed by changes of the type sought by activists, including CEO turnover, higher shareholder payouts, and improved operating performance. We find no evidence to support concerns that settlements enable activists to extract rents at the expense of other investors. Our analysis provides a look into the “black box” of activist engagements and contributes to understanding how activism brings about changes in target companies.

Market reactions on shareholder activism through open letters

To position themselves in the competitive landscape of fund collection, activist investors have to generate public awareness for their actions and differentiate themselves from other investors. Thereby, the activist investor Petrus Advisers predominantly uses the instrument of open letters in daily newspapers. By its concentration on this single instrument, Petrus Advisers allows us to analyze shareholder activism not only from an overall investor’s case study perspective but also with a focus on a single tool of activism. We examine market reactions caused by these open letters on the target companies’ share prices with a regional focus on Continental Europe. The analysis of 42 open letters shows that only initial publications addressed directly to the management board of the target companies induce positive market reactions. In addition, less profitable firms and companies with a larger number of employees generate greater positive stock price reactions. Based on the results, open letters might not be the most favorable single instrument for activist investors in Europe.

The Consequences to Directors of Deploying Poison Pills

We examine the labor market consequences for directors who adopt poison pills. These directors experience a decrease in shareholder votes, an increase in termination rates across all their directorships, and a decrease in the likelihood of new board appointments. These adverse consequences accrue especially when pill adoption is costly for the firm and are not attributable to firm-specific events that can motivate pill adoptions. Firms have positive stock price reactions when pill-associated directors die or depart from their boards, compared to zero returns for other directors. We conclude that pill-adopting directors experience a decrease in the value of their services.

Do CEOs' Outside Directorships Affect the Performance of Their Own Firms?

The practice of CEOs serving on the board of other public companies has raised concerns from investors and proxy advisory firms about the potential harm to shareholders. In this paper, I analyze the change in performance of CEOs’ own firms after their appointment as an outside director at another firm. Using the distance to appointing firms’ headquarters as an instrumental variable for directorship appointments, I find that CEOs' own firms exhibit improvements in operating performance following their first appointment and the announcements of such appointments have a positive stock price reaction. Subsequent appointments do not result in performance declines. Performance improvements following the first appointments are stronger in cases where the appointing firm is relatively larger and where the appointing firm operates in vertically related industries. These findings resolve concerns from investors and show that CEOs’ own firms can benefit from their outside directorships through CEOs' learning and information sharing.

Stock price reactions to news about corporate tax avoidance and evasion

This study examines stock market responses to news on corporate tax strategies. Our dataset includes 176 tax news items regarding listed German firms over the period from 2003 to 2016. In contrast to previous research, we distinguish between news about corporate tax strategies that are legal (tax avoidance) and illegal (tax evasion). We show that stock market responses differ significantly between news items concerning legal and illegal activities. We find negative abnormal returns for tax evasion news, while we find no general effect for tax avoidance news. Moreover, we do not observe any evidence of average reputation or agency costs exceeding the positive effect of legal tax planning. However, we find positive stock price reactions to legal tax planning when firms’ tax risk is low. Our findings contribute to the ongoing debate among researchers, politicians, and corporate managers on the benefits and costs of corporate tax strategies and address the issue of morals in markets.

Stock market reaction to cash dividends: evidence from the Nigerian stock market

PurposeVery little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this paper is, therefore, to provide empirical evidence on this issue by investigating the stock price reaction to cash dividends by companies listed on the Nigerian Stock Exchange.Design/methodology/approachStandard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the cash dividend announcement date. Abnormal returns are also calculated employing the market-adjusted return model as a robustness check and to test the sensitivity of the results to β estimation. The authors also examine the interaction between cash dividends and earnings by estimating a regression model where announcement abnormal returns are a function of both dividend changes and earnings changes relative to stock price.FindingsThe study find support for the signaling hypothesis: dividend increases are associated with positive stock price reaction, while dividend decreases are associated with negative stock price reaction. Companies that do not change their dividends experience insignificant positive abnormal returns. The results also suggest that both dividends and earnings are informative, but dividends contain information beyond that contained in earnings.Research limitations/implicationsThe sample for the study includes only cash dividend announcements occurring without other corporate events (such as interim dividends, stock splits, stock dividends, and mergers and acquisitions) during the event study period. The small firm-year observations may limit the validity of generalizations from these conclusions.Practical implicationsThe findings are useful to researchers, practitioners and investors interested in companies listed on the Nigerian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Nigerian stock market.Originality/valueThis paper adds to the very limited research on the stock market reaction to cash dividend announcements in Nigeria; it is the first of its kind employing a unique cash dividends data.

Does moral capital be an asset when there is a negative CSR event? Reexamining CSR buffering effect

This study investigates the valuation effects and the performance of the corporate social responsibility (CSR) activities adopted by the 72 CSR-awarded and the 87 non-awarded listed firms in Taiwan, using 1,368 positive and negative CSR events during the period of the 2008-2011 financial crisis. This study categorizes CSR activities into four groups¡Xsociety, the environment, employee, and consumers¡Xand provides an overview and a comparison of CSR activities in an emerging economy in Asia. This study focuses on the reputation effect for negative CSR events and compares the performance of the CSR-awarded and non-awarded firms for negative CSR activities. The results show that, in Taiwan, positive CSR activities are accompanied by a significant amount of positive stock price reactions and better long-term performance, which is consistent with the evidence found in the literature. However, compared with non-awarded firms, when CSR-awarded firms experience negative CSR events, their investors will impose stricter punishments. Consequently, the short- and long-term performances of CSR-awarded firms are inferior to those of non-awarded firms.

The Importance of Being Prudent: Leverage and the Informational Content of Dividends

This paper studies how the informational content of dividends is affected by leverage. While higher dividends convey good news at low levels of leverage, dividends become a bad signal when leverage is high. Quantitatively, a dividend increase is predicted to have a positive stock price reaction for the median public U.S. firm, but the effect is reversed at higher levels of leverage. The same switch occurs for other corporate actions, including debt buybacks, debt issuance and risk taking. The results highlight the importance of studying the various determinants of firms’ financial decisions jointly.

U.S.-style investor activism in Japan: The first ten years?

This paper provides a comprehensive look at the first decade of U.S.-style investor activism in Japan, the second largest stock market in the world with many underperforming and cash-rich firms. Barriers to shareholder activism have historically been high but we document an unprecedented wave of block acquisitions by hedge fund and other investors with a total of 916 stakes reported in the period between 1998 and 2009. There is, on average, a positive stock price reaction to the announcement of activist investments, particularly for events involving hostile funds. The long-run returns on activism are positive only for events involving hostile funds. We find that activists have forced target firm managers to increase their payouts compared to peer firms, and there is some evidence of change in corporate governance. Finally, after 2006 there was a widespread adoption of “poison pills” by firms, particularly those targeted by activists, and a subsequent drop in investor activism. Our paper shows how U.S.-style activist investors are responsible for the “import” of corporate governance mechanisms from the U.S. into a foreign market.

Dancing with Activists

An important milestone often reached in the life of an activist engagement is entering into a “settlement” agreement between the activist and the target’s board. Using a comprehensive hand-collected data set, we analyze the drivers, nature, and consequences of such settlement agreements. Settlements are more likely when the activist has a credible threat to win board seats in a proxy fight and when incumbents’ reputation concerns are stronger. Consistent with incomplete contracting, face-saving benefits and private information considerations, settlements commonly do not contract directly on operational or leadership changes sought by the activist but rather on board composition changes. Settlements are accompanied by positive stock price reactions, and they are subsequently followed by changes of the type sought by activists, including CEO turnover, higher shareholder payouts, and improved operating performance. We find no evidence to support concerns that settlements enable activists to extract rents at the expense of other investors. Our analysis provides a look into the “black box” of activist engagements and contributes to understanding how activism brings about changes in target companies.

Good News in Numbers

This paper investigates the ratio of quantitative and qualitative content in disclosure and finds that the proportion of qualitative and quantitative information in disclosures contains value-relevant information for investors, since executives tend to use qualitative information, which is less precise, to obscure their poor performance. I calculate the proportion of numbers to words in conference call transcripts as a proxy for the proportion of quantitative information. Using this measure, I find that the proportion of quantitative information is positively related to operating and financial performance. I also find that managers are more likely to talk up their performances when using lower proportion of quantitative information. In addition, a high proportion of quantitative information is associated with a more positive stock price reaction, suggesting that a high proportion of quantitative information also conveys positive information about the firm. Finally, investors do not fully incorporate this information in the stock prices. A high proportion of quantitative information predicts a positive drift in stock returns after the conference call date.

Investors and Stranded Asset Risk: Evidence from Shareholder Responses to Carbon Capture and Sequestration (CCS) Events

As evidence for climate change mounts, the case gets stronger for not developing a large portion of existing fossil fuel reserves, particularly for coal as the highest emitter of CO2 per unit of energy produced. To avoid catastrophic climate change effects, reserves may become unburnable (i.e. “stranded assets”) posing significant risk to fossil fuel investors. Technology in the past has come to the rescue, so investor valuations may depend on investor perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as such a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find a significant positive stock price reaction to CCS breakthroughs, but no reaction for CCS setbacks. The results suggest that investors have embedded stranded asset risk into their valuations, but also recognize the significance of CCS technology development and deployment for the economic prospects of the coal industry.