Firm Price Research Articles

Innovation Concentration and Patent Market Structure

Two empirical facts concerning the increase in innovation concentration levels of U.S. industries over the last two decades have been established: innovating firms with larger market shares invest more in R&D and enter into more industries. This paper presents a model of an imperfectly competitive patent market with heterogeneous firms to show that R&D itself increases industry concentration. In the context of an imperfectly competitive patent market structure, firms generate endogenous variable markups. In particular, the price of firms' newly invented knowledge, the profit and survival rate of the innovating firms depend on the market share of the knowledge stock. Firms pay a random fixed cost in each period which together with market share determine the decision on whether to innovate in different sectors. Firms enter different sectors sequentially: they start developing new varieties in a sector with minimal competition, building up private knowledge, and then venturing into other sectors using R&D investment and accumulated knowledge. Finally, we prove that the stationary firm innovation size distribution exhibits a Pareto tail in the steady state.

Dividend Policy and Share Price Volatility of Listed Construction Firms at the Nairobi Securities Exchange, Kenya

The inherent volatility in all stock market scares low risk takers from the financial market and is capable of deterring investments. One of the factors that drives investors’ reactions to stock pricing is the dividend policy. This study examined the influence of dividend policy on the volatility of stock prices of construction firms listed at the Nairobi Securities Exchange for the period spanning five (5) years from 2019 to 2023. The study was dealt with on the following objectives; to examine the influence of dividend pay-out on share price volatility of listed construction firms at the NSE, Kenya, to determine the influence of dividend yield on share price volatility of listed construction firms at the NSE, Kenya. The study was guided by the: Dividend relevance theory, and dividend irrelevance theory. This study adopted a correlational research design while dealing with the research objectives. A census method was employed in data collection before analysis of the audited financial statements that was downloaded from the firm websites in arriving at detailed and well informed conclusions by employing Multiple regression, Correlation and ANOVA techniques using the Statistical Package for Social Sciences (SPSS) to establish the existence (or lack of it) of the relationship between the independent variables and the dependent variable of the study. The findings revealed that dividend policy influenced share price volatility by; dividend pay-out ratio (r=0.111, β=0.036, t=4.7240); and dividend yield (r= -0.018, β= -0.003, t= 2.7130). The study recommended that potential and existing investors should opt for listed firms in the construction sector with a high dividend payout ratio compared to the earnings generated by the firms; Investors to invest in firms with high dividend payouts. The study achieved its main objective. Keywords: Dividend Policy, Dividend Pay-out, Dividend Yield, Share Price Volatility

AN AUSTRIAN CRITIQUE AND ALTERNATIVE TO DISCOUNTED CASH FLOW ANALYSIS

Among scholars, Discounted Cash Flow is considered one of the most precise methods to preview the “fair” value of an asset. However, as the Austrian School explains, social phenomena are complex and cannot be modeled. Social facts involve uncountable variables and a radical, permanent uncertainty. So, this work presents a critique of the Discounted Cash Flow Perspective and introduces guidelines for the development of an Austrian entrepreneurial-based alternative. Entrepreneurs are individuals who bear uncertainty, while seeking profits and molding the future, aiming to satisfy consumer needs. It is through entrepreneurship that firms sustain their activities over time, challenging turbulences and creating/exploiting opportunities. Then, more than modeling prices of firms, investors should analyze the quality of the entrepreneurship of the firms they intend to invest in, rewarding and trusting those they see as most profitable in the future.

The downstream firm's decision over R&D for energy-saving

Although energy saving for a firm is very important, the R&D literature has rarely discussed this issue. This paper provides a vertically-related model to analyze how conducting energy-saving R&D affects the upstream firm's pricing decision and downstream firm's energy-saving and output decisions. We show that an increase in energy price may induce the downstream firm to purchase more energy, but less efficient R&D may not induce the downstream firm to purchase more energy. Moreover, more efficient R&D may not increase the energy price under the upstream monopoly case. Finally, social welfare may not improve when the upstream market becomes more competitive.

The bright side of analyst coverage: Evidence from stock price resilience during COVID-19

Understanding a firm's stock price resilience is crucial in an increasingly uncertain environment. We investigate the impact of financial analysts on a firm's stock price resilience. We find that firms in the Chinese stock market with higher analyst coverage were more resilient during the COVID-19 crisis and had lower pandemic-induced stock price declines, shorter decline and recovery periods, and higher recovery probability. This positive relationship is more prominent for firms with strong star analyst coverage and does not depend on ownership type or firm size. Moreover, analysts help firms attract attention from media and institutional investors, improve corporate governance by improving information disclosure quality (especially for private information), and reduce financial constraints, in turn, firms’ ability to absorb pandemic shocks improves. Overall, we demonstrate that financial analysts play a crucial role in shaping a firm's stock price resilience during crises, particularly for firms with strong star analyst coverage.

Do managers have more incentives to hoard bad news during panic? A study of terrorist attacks and stock price crash risk

We identify a robust and significant relationship, both statistically and economically, between the rise in a firm's stock price crash risk and the occurrence of terrorist attacks in the vicinity of the firm's headquarters. The empirical findings support the idea that terrorist attacks often trigger increased performance pressures and elevated investor sensitivities, thereby initiating the information manipulation activities of firm managers. Additionally, we examine the heterogeneous effects of corporate governance quality and firm transparency, indicating that firms with superior corporate governance and transparency are less vulnerable to the impact of terrorist attacks. We offer insights into the economic consequences of managerial behavior responses because of the traumatic shock of terrorist attacks.

Firm Size on IDX BUMN 20 Stock Prices: The Role of Mediating Activity and Profitability

This study investigates if firm size increases stock prices using activity and profitability as mediating variables. It employs a quantitative causality method using secondary data from financial reports on firm websites and the IDX. The sample includes companies listed in the IDX BUMN 20 index from 2018-2021, using non-probability sampling and unbalanced panel data estimated with a random effects model. Data analysis involves descriptive statistics, mediation regression, and path analysis with Eviews 12 software. Results indicate firm size and profitability positively impact stock price, firm size positively impacts profitability, activity does not impact stock price, and activity and profitability do not mediate the firm size-stock price relationship

Secrecy culture and sensitivity of investment to stock prices: Evidence from emerging markets

This paper investigates the effect of secrecy culture on the relationship between corporate investments and stock prices. We argue that managers from secretive cultures are more likely to rely on stock prices as an additional source of information, thereby leading to greater sensitivity of their investments to stock prices. Consistent with our arguments, we show that firms headquartered in countries with higher levels of secrecy culture exhibit stronger sensitivity of corporate investments to stock prices. Our results hold across various estimation strategies, in different sub-samples and for alternative proxies of secrecy culture and corporate investments. Furthermore, we show that investments exhibit greater sensitivity to stock prices of peer firms in countries that score high on secrecy.

Revisiting the ability of research and development activities to improve value relevance

PurposeThis article aims to evaluate the informativeness of accruals on stock prices. Investors may misinterpret the information contained in accruals and produce accrual anomalies. Accruals accounting improves the quality of financial statements by providing useful information, although it also contains judgments and is less objective than operating cash-flows.Design/methodology/approachWe employ data panel regression analysis to investigate the value relevance of financial information. Our study takes the object of companies listed on the Nasdaq stock exchange (NASDAQ) as the representative of the prominent stock exchange for technology-driven enterprises and entrepreneurs. Expanding the findings, we also use Shanghai Stock Exchange (SSE) data.FindingsOur research finds that accruals are still relevant. However, firms with R&D expenditures reduce the ability of accruals to explain stock prices for non-technology firms and firms without intangible assets. After analyzing only tech firms (and firms with intangible assets), our tests show that R&D expenditures improve the relevancy of accruals. These findings apply to both Nasdaq and SSE.Practical implicationsPractitioners and the investment community get valuable insights into how the recognition and measurement of R&D expenditures affect the value relevance. Information about R&D increases relevancy only in firms with intangible assets and those that operate in the technology industry.Originality/valueOur paper provides benefits by using R&D expenses to affect accruals' informativeness by comparing two countries with different recognition of R&D.

Beyond borders: Interlocking directorships and stock price reactions of Islamic firms

Announcing a director's additional appointments may positively reflect the skills and negatively reflect the workload of the director and, therefore, may influence how investors perceive the shareholder value of the director's home firm. We examine the announcement effect of 276 additional appointments on the stock price of Islamic firms from 2010 to 2022. Event study tests show that the appointment of directors to other firms in Islamic jurisdictions decreases the home firm's stock price, on average. For appointments to non-Islamic firms, the stock price increases in the appointing firm's relative market capitalization, which brings prestigious benefits to the home firms.

Information security decisions of security‐interdependent firms in the presence of consumer sensitivity

AbstractFirms suffer security‐interdependent risks while applying network technology, causing severe customer churn. This paper studies the security and price decisions of security‐interdependent firms that face security‐sensitivity consumers. We show that one firm's product price increases (decreases) with the other's security efforts under positive (negative) interdependence. Firms can overinvest or underinvest in security due to security interdependence. Two mechanisms are proposed to solve this distortion. In the Reward mechanism, the firms reward (penalize) the other under the positive (negative) interdependence. In the Outsourcing mechanism, the security service providers raise (reduce) the compensations with consumer sensitivity.

Stock liquidity and the signaling value of patents: Evidence from china's national equities exchange and quotations market

Young and technology-oriented firms suffer from asymmetric information in seeking access to finance. An increase in stock liquidity can improve a firm's stock price informativeness and mitigate such information problems. We expect that firms will patent less when they face an increase in liquidity if patenting is used as a costly signal mechanism to demonstrate firm quality. By examining an exogenous policy shock that dramatically improves the stock liquidity of treated firms in China's National Equities Exchange and Quotations (NEEQ) market, we document evidence that treated firms patent less after the shock. Our findings reveal the importance of liquidity in reducing the deadweight costs caused by asymmetric information and the signaling value of patenting, and urge caution regarding the sole use of patent applications to measure innovation performance in entrepreneurial firms.

Industry effects of corporate environmental and social scandals: Evidence from China

This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.

Exploring the Nordic numbers: an analysis of price clustering in Scandinavian stocks

PurposeThis paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland.Design/methodology/approachThis paper investigates share price clustering and its determinants across Nasdaq Stockholm, Copenhagen, Helsinki, and Iceland. Univariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering.FindingsUnivariate analysis confirms widespread clustering, notably favouring closing prices ending in zero. Multivariate analysis explores the impact of firm size, price level, volatility, and turnover on clustering. Results reveal pervasive clustering, strengthening with higher prices and turnover but weakening with larger trade volumes, firm size, and smaller tick sizes. These empirical findings support the theoretical expectations of price negotiation and resolution hypotheses.Practical implicationsThe observed clustering presents an opportunity for investors to potentially capitalize on this market anomaly and achieve supra-normal returns.Originality/valuePrice clustering, the phenomenon where certain price levels are traded more frequently, challenges the efficient market hypothesis and has been extensively studied in financial markets. However, the Scandinavian stock markets, particularly those in the Nasdaq Nordic Exchange, remain unexplored in this context.

Chinese Import Competition and Prices: Evidence from India*

How do output prices respond to trade shocks? Using detailed firm‐product level data on sales and quantity between 1996 and 2007, we study the causal effect of Chinese import competition on prices for Indian manufacturing firms. We find that Chinese import competition induces a significant decline in firm‐product prices. A 1 percentage point increase in the Chinese import penetration ratio reduces firm‐product prices by 3.5%. Further, this decline in prices is driven by a decline in markup, conditional on costs, as opposed to the pass through of cost savings to prices – providing evidence for pro‐competitive effect. This decline in prices and markup is less pronounced for firms owned by Business Groups compared to stand‐alone, privately owned firms. We also document a large decrease in marginal costs and an increase in markup with no significant effect on prices for firms on account of increased access to imported Chinese inputs.

Joint optimization of dynamic pricing, quality, and production quantity in the presence of online reviews: A distributionally robust optimization approach

This paper investigates the joint pricing, product quality, and production quantity decisions of a firm in a two-stage scenario, considering potential market demand uncertainty and the existence of online reviews. Two decision models are established based on whether the firm adjusts product quality and prices according to consumer feedback from reviews: a static model (as a baseline) and a dynamic model. In the static model, the firm decides product quality, prices, and production quantity in the first stage, while in the second stage, the firm does not enhance product quality, and prices remain unchanged. In the dynamic model, in the first stage, the firm decides initial product quality and pricing, then in the second stage, adjusts product quality based on consumer feedback and sets pricing accordingly. We propose a distributionally robust optimization (DRO) method to address this problem, obtaining a closed-form solution for the expected profit function under the worst distribution, making it easy to determine the optimal decision. Through numerical simulation analysis, we find that the firm implementing dynamic decisions always make higher profits compared to those using static decisions. This highlights the superiority of dynamic decisions in adapting to market changes and improving product quality. We also analyze the impact of expected and standard deviation of potential market demand, as well as consumer private assessment weight, on business decisions and profits. Our research provides effective support for firms with limited market information, enabling them to better formulate joint pricing, quality, and production decisions.

Microeconomic Analysis of Consumer Behavior and Firm Pricing Strategy

Microeconomic Analysis of Consumer Behavior and Firm Pricing Strategy

How CSR Performance and Financial Report Quality Affect Corporate Share Prices? Case of Indonesia

Purpose: This research intends to investigate the impact of financial report quality and CSR performance on the firm share prices. Methodology/approach: The 78 firms-years observation of LQ-45 public listed companies in Indonesia from 2019 to 2020 is used in this study. The financial report quality is measured by the accrual-based model of earning management, while CSR performance is measured by the amount of CSR spending. The OLS regression is applied to test the hypotheses. Findings: The findings show that there is no effect of financial report quality on the share prices. On the other hand, CSR performance plays an important role in influencing a company’s share prices. CSR performance has a positive effect on share prices. The financial report failed to ensure that there is no existing information asymmetry within the organization. While CSR performance is a form of social-engaged activities in order to achieve social benefits and legitimation. Practical implications: In the context of legitimacy and agency theory, these findings provide fruitful insight into how the firm performance is valued by investors, which is not only based on financial performance but also based on non-financial performance. Originality/value: By providing a new measurement of CSR performance, this study is different to most existing CSR kinds of literature.

Do Tragic Events Make Investors More Pro-social? Evidence from Japan

This article investigates the impact of the 2011 Great East Japan Earthquake on investor responses to corporate social responsibility (CSR) activities in Japan. Employing Propensity Score Matching and Difference-in-Differences analyses, we analyse investor reactions to both positive and negative CSR news pre- and post-earthquake. Our results indicate a significant increase in share prices for firms that reported positive CSR news post-earthquake, thereby highlighting a heightened investor value on CSR during times of crisis. In contrast, negative CSR news showed a more pronounced negative effect in longer term windows. Additionally, industries directly affected by the earthquake experienced a substantial shift in investor sentiment towards negative CSR news. These findings enhance the understanding CSR’s tole in investor behaviour during crises and offer insights into effective corporate strategies in disaster-prone contexts, particularly in Japan’s unique cultural and economic landscape.

Impact of investor trust on public firms’ stock price efficiency and cost of capital: Insights from a firm-level measure for investor trust

Although studies have suggested that investor trust positively influences stock price efficiency and subsequently reduces the cost of capital for public firms, few studies have employed a direct firm-level measure of investor trust to offer empirical support for this proposition. Because stock prices are more efficient surrounding earnings announcements, we construct this measure by examining how prices change when unexpected earnings reports are provided. Using US market data from 1990 to 2019 to determine how strongly investor trust affects public firms’ stock price efficiency and cost of capital, we find that stock prices of firms with higher investor trust reflect market news more efficiently and predict earnings more accurately. Furthermore, our results suggest that companies trusted more by investors can raise money more cheaply. Collectively, our findings underscore the importance of fostering investor trust as a means of enhancing stock price efficiency and reducing the cost of capital.