Investor Reaction Research Articles

Mitigating Investor Reactions to Financial Misconduct: The Moderating Roles of Firm Commitment Cues

AbstractCorporate financial misconduct has garnered increased interest in business ethics research. Although prior research has provided insights into the consequences of financial misconduct, our understanding of why investors react differently to similar instances of misconduct, especially in emerging markets, remains limited. In this study, we first argue that direct information on the severity of misconduct is the primary basis for investors’ evaluations. Next, drawing on screening theory, we theorize that in contexts characterized by high information asymmetry, indirect information about existing firm commitment cues plays a vital screening role by demonstrating the firm’s legitimacy and capability. Subsequently, we develop a tripod framework that integrates the social, market, and strategy dimensions as firm commitment cues that serve as fundamental screening mechanisms to mitigate the adverse effect of misconduct severity on investor reactions. We use a sample of 344 Chinese listed firms that engaged in financial misconduct during 2009–2019 and find that greater misconduct severity results in more negative investor reactions. However, this negative relationship is weakened when the firm demonstrates stronger social and strategy commitments but not stronger market commitment.

Technology acquisitions and investor expectations: Reputation and expectancy violation perspectives

AbstractEmploying the organizational reputation lens and expectancy violation theory (EVT), I examine how financial market investors (investors) affect the technology acquisition activity and the likelihood of survival of firms facing technological change. I theorize that when a firm has a growth reputation, that is, investors expect revenue growth in future periods, the likelihood of making an acquisition will increase in anticipation of a positive expectancy violation on the part of investors. In contrast, for a firm that has an income reputation, that is, investors expect shareholder returns in future periods, the likelihood of making an acquisition will decrease in avoidance of a negative expectancy violation on the part of investors. I predict a novel moderating effect of investor expectations—a firm's acquisition activity will exert a stronger positive effect on its likelihood of surviving technological change when investor expectations are growth‐oriented, that is, when there is a positive expectancy violation. Using a multi‐industry sample of industry convergence, a salient form of technological change, I find support for my theoretical predictions. I advance research that examines the reactions of investors to firm strategies during technological change to the domain of technology acquisitions, a salient strategic decision. I also expand the predictive utility of the reputation lens and EVT to the context of firm survival during technological change.

Do investor reactions to merger announcements shape the writing of SEC filings?

The way filings of mergers and acquisitions (M&A) with the Security Exchange Commission (SEC) are written might depend on investor reactions to initial public announcements of the deal. We examine this investor feedback hypothesis by focusing on the readability and timing of a large sample of SEC documents. We show that acquirers write documents with lower readability and file them faster when investors react negatively to the deal announcement, a finding consistent with strategic obfuscation efforts. The results are robust to alternative empirical choices, such as controlling for deal complexity or the firm's writing style. They are also confirmed using an instrumental variables approach.

CEO-related announcements, trading activity, and calendar effects

ABSTRACT This study examines how abnormal trading volumes reflect new information, such as CEO-related announcements. Using hand-collected data on 1,236 CEO reappointments and turnovers from Polish firms listed on the Warsaw Stock Exchange, we show that investor reaction to CEO-related announcements is stronger in the winter-spring season than in the summer-fall season. However, in the summer-fall season, CEO reappointment triggers higher trading activity than CEO turnover announcements, while in the winter-spring season, the reaction is opposite. We also discover that abnormal trading volumes induced by CEO-related announcements are significantly lower at the beginning and end of the week than in the middle of the week. Furthermore, when it comes to day of the week anomalies, investors are much less interested in CEO reappointment than in turnover. The findings suggest that calendar effects influence investor reactions to CEO appointments, offering new insights into market anomalies and corporate governance mechanisms.

It’s time to speak up! investor reaction to CEO sociopolitical activism

In this study, we explore how investors react to incidents of CEO sociopolitical activism. Drawing from the business case logic and political psychology literature, we theorize that the perceived relevance and ideology of CEO comments, as well as the institutional context in which they were made determine investor reactions. Our analysis of 379 CEO comments made between 2007–2020 indicates that investors react positively to CEOs’ political comments and negatively to sociocultural ones. Specifically, political comments are received favorably by investors if they are conservative-leaning, and this is especially true when made by CEOs of firms with greater government dependence or those operating in highly regulated industries. Conversely, investors react negatively to social comments made by CEOs of highly regulated firms. Overall, this study addresses recent calls for research on the expanding role of executives by highlighting the complex reactions CEO sociopolitical activism engenders among capital market stakeholders.

Investor Reaction To The Implementation Of Sustainability Reporting

The purpose of the disclosure of Sustainability Reporting is to solve social and environmental issues and may have an impact on achieving sustainable development in the face of social responsibility issues. In addition, Sustainability Reporting Disclosures can be used to achieve company goals. This study aims to analyze the implementation of Sustainability Reporting and whether it affects investor reactions in considering investment decisions. Sustainability Reporting disclosure in this study was tested as an independent variable with control variables EPS, PBV, and Dividends. An increase or decrease in stock prices indicates that investors react to the information disclosed, in this study, stock prices were tested as the dependent variable. The total research sample is 30 companies listed on the Indonesia Stock Exchange, with the category of companies getting an assessment rating from the National Center for Sustainability Reporting (NCSR). The results of hypothesis testing show that Sustainability Reporting disclosures have a significant effect on stock prices, so it can be concluded that Sustainability Reporting disclosures can provide a reaction to investor decisions. Control variables EPS, PBV, and Dividend Policy significantly affect stock prices.

Corporate violations, traditional media and stock returns: Evidence from Chinese listed companies

This paper investigates whether traditional media still influences investors’ behaviors amid the rise of social media. Using a dataset of corporate violations by Chinese listed companies from 2005 to 2023, the study assesses the role of news reports in shaping investor reactions to these negative events. The results show that news coverage, even when unrelated to violations and carrying positive sentiment, amplifies the initial impact of corporate violations on stock prices. This effect is increasingly pronounced, particularly for firms with low transparency. The results indicate that traditional media attracts investors’ attention despite the proliferation of diverse information sources.

Market reactions to capital increases: Insights from asset revaluation in pharmaceutical companies on the stock exchange

This study investigates the impact of capital increases on market reactions, focusing specifically on pharmaceutical companies listed on the Tehran Stock Exchange (TSE). We analyze stock returns over a six-month window: three months preceding and three months following the announcement of capital increases. Employing the market model, we assess investor responses and the revaluation of assets associated with these capital injections. Our comprehensive sample includes 200 pharmaceutical firms selected through systematic random sampling, covering the period from 2017 to 2023. The results reveal that asset revaluation significantly enhances investor reactions compared to capital increases stemming from cash contributions and retained earnings. Furthermore, our findings underscore the critical role of information transparency from company management in shaping market responses. This research contributes to a deeper understanding of investor behavior and informs management strategies related to capital restructuring in the dynamic pharmaceutical sector.

ABNORMAL ANALYSIS OF RETURN AND TRADING VOLUME ACTIVITY DURING THE COVID-19 PANDEMIC

This study aims to determine investor reactions from announcements given by the Government of Indonesia regarding the COVID-19 pandemic. In this study, investors' reactions were seen from whether there were abnormal differences in return and trading volume activity before and after the announcement. The announcements used in this study were the announcement of the first COVID-19 patient in Indonesia, the announcement of the PSBB and the announcement of the new normal. The sample used was 45 shares of companies listed in LQ45 on the IDX. The window period used in this study is 15 days, which is 7 days before the announcement, 1 day of announcement and 7 days after the announcement. The data analysis technique used is the paired sample t-test. The test results of this study show that there is investor reaction, judging from the abnormal return around the announcement of the first COVID-19 patient in Indonesia, the announcement of the PSBB and the announcement of the new normal. Hypothesis testing shows that there are abnormal differences in return and trading volume activity before and after the announcement of the new normal. Meanwhile, there were different results in abnormal return testing and trading volume activity before and after the announcement of the first COVID-19 patient and the announcement of the PSBB, which showed no significant difference.

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.

The Ex-Dividend Effect for Reported Listed Companies in Taiwan

Past literature shows that investors use mental account when they are facing dividend distribution. That is, investors focus on dividend distribution and irrationally ignore the tradeoff of dividend payment and price decrease. The dividend is thus deemed as bonus to investors. Furthermore, investors tend to buy ex-dividend stocks after the ex-dividend day due to the expectation of price recovery. The buying forces around the ex-dividend day persistently push the price. After the ex-dividend, investors gradually become rational. The stocks thus are priced based on the fundametals. The overprice of stocks due to the ex-dividend events may consequently decreases. Past litearture regarding ex-dividend focuses on the announcemnet effect and ex-divend effect on the ex-dvidend day. The contribution of this project is to combine the issues of ex-dividend and media coverage to investigate whether the investing behavior bias of investors is strengthened after the coverage of ex-dividend news by media. Past literature has confirmed that investors refer to the media coverage when they are making stock picking decisions. However, the past literature did not further investigate the reaction of investors to the ex-dividend news. This study fills the gap of the literature to combine these two issues, which may provide a referecne for investors when they are making investing decisions.

Analysis of Investor Reactions Comparison to Covid-19 Developments in ASEAN Capital Market

Analysis of Investor Reactions Comparison to Covid-19 Developments in ASEAN Capital Market

Between Exchange Rate Returns and Crude Oil Returns in Oil-Importing Countries

Fluctuations in the financial markets stem from the reactions of investors to both market activities and more wide-ranging macroeconomic indices. This research examines the interconnectivity between returns on exchange rates and crude oil prices for ten oil-importing countries. Quarterly data spanning the period from 2000Q1 to 2022Q4 was used in the estimation. Returns had to be calculated from raw data, which were exchange rates and crude oil prices. The research methodologies include quantile regression and VAR-GARCH estimations. The study revealed a long-term association between crude oil market returns and foreign exchange markets, with currency fluctuations negatively impacting crude oil returns. The spill-over effect from the currency market to the oil market is weaker than the transmission effect from the oil market to the currency market of oil-importing countries. In particular, it was empirically established that shocks from past volatility in the currency markets of countries that import oil had commensurately lower volatility in the oil market by 6 percent. Whereas, the spillover from the crude oil market to the currency market depicts that increased turbulence on the crude oil market in the current period stimulated 55.66 percent amplified volatility in the currency market for oil-importing nations. Oil returns had a volatility persistence value of 0.1255, ratifying the weak volatility persistence of oil returns. The size of the volatility persistence of exchange rate returns is 0.997, an indication of high volatility persistence for currency returns. The study found the absence of leverage effects for currency values given a positive coefficient with a magnitude of 0.8529. In other words, bad news does not cause higher turbulence in exchange rate returns than good news will. For crude oil returns, the size of the leverage effects term is -0.0529, which is negative and significant (p<.05), implying that bad news in oil-importing economies has asymmetric impacts on the volatility of returns on crude oil prices. In effect, the oil price returns react more strongly to bad news than these returns react to good news. The findings of the study underscore the intricate relationships between local currencies and energy prices within the context of a global financial market, highlighting the significance of understanding these dynamics for effective decision-making and risk management in an increasingly interconnected world. It was recommended, among others, that international collaboration amongst countries is crucial given the global nature of energy markets.

Timeliness of investor reaction to corporate crypto‐asset investment: Evidence from types of disclosures

Timeliness of investor reaction to corporate crypto‐asset investment: Evidence from types of disclosures

Firms Entangled in Geopolitical Conflicts: Evidence from the Russia-Ukraine War

We examine the reactions of US-based multinationals and subsequent financial market reactions to Russia’s invasion of Ukraine in February 2022. The multinationals’ firm-level decisions range from clean exits from the Russian market, all the way to ‘digging in’ as if the war never happened. Findings show that, in the short-term, markets favour ‘middle ground’ decisions which balance shareholder interests with regulatory and ethical concerns. This is manifest through those firms taking extreme decisions, on either end of the spectrum, experiencing more negative returns. In the longer term, however, investor ethical concerns and other considerations dominate such that firms announcing clean breaks incur lower losses compared to their peers. In other words, sitting on the fence and playing both sides does not pay off for long. We also show interesting differences in investor reactions between two major non-US markets: China − a Russia-leaning country − vs India − a neutral country. While Indian investors behave largely similar to US investors, Chinese investors do not significantly punish firms that stay put in Russia. We re-examine the situation one year into the war and show that markets reward a Russia-opposing corporate position in the longer term.

Be alert of the hyped words around fancy tech! Strategic digitalization disclosure under earnings pressure

We investigate whether managers conduct digitalization-related strategic disclosure when their firms are under earnings pressure based on a sample of Chinese listed companies. Our findings indicate that earnings pressure significantly increases corporate abnormal digitalization disclosure. Meanwhile, the inflated digitalization disclosure under earnings pressure is more pronounced for firms with greater market pressure, under weaker external monitoring, in industries where digitalization is of higher importance, and during the more recent years. Furthermore, our study reveals that more abnormal digitalization disclosure under earnings pressure indeed reduces negative investor reaction, validating the managerial incentive for this disclosure strategy. Our study serves as a caution to investors about the potential exaggeration of novel technology disclosure under certain circumstances.

Exaggerating, distracting, or window-dressing? An empirical study on firm greenwashing recognition

This paper uses both quantitative and qualitative methods to identify and categorize three distinct greenwashing practices: exaggerating, distracting, and window-dressing. It investigates the investor reaction and third-party ESG/CSR ratings associated with each type, thereby ascertaining their ability to recognize potential greenwashing activities. The results show that exaggerating strategy, which is mostly discussed, is not so common among Chinese listed firms. Additionally, greenwashing firms exhibit significantly higher market returns through signal effects, while receiving lower rating evaluations. These findings shed light on the ability of investors to recognize distinct greenwashing tactics and highlight the comparable rational evaluation of ESG/CSR rating platforms.

Analysis of Investor Reactions to The Right Issue at The IDX Before and During Covid-19

The COVID-19 pandemic has resulted in fluctuations in movement stock prices, and greatly influenced economic conditions as well as reactions of investors regarding the rights issue policy which will influence buying and selling interest shares. The rights issue is an event where information is published as an announcement that can be used to see market reactions. This research was conducted to analyze investor reactions to the Rights Issue announcement. Using 50 samples of companies that carried out rights issues during 2017 - 2020. The inquiry about was carried out utilizing the occasion consider strategy with an advertising show approach. The ordinariness test is the Kolmogorov – Smirnov test. The statistical test used in this research is the difference between two means tests (Wilcoxon Signed Rank Test). The comes about of this inquiry appears that there's a noteworthy contrast in excess returns within the period sometime recently and after the declaration of the rights issue, be that as it may, this inquiry appears that there's no distinction in stock liquidity sometime recently and after the declaration of the rights issue. there's no distinction between the bid-ask spread sometime recently and after the declaration of the rights issue, both sometime recently and amid the widespread COVID-19 implies that the declaration of the rights issue cannot be utilized as a reference choice in an exertion to extend the liquidity of the company offers within the long-term brief, this can be since the declaration of the rights issue isn't sufficient contains data that can impact venture choices.

Business Models Drive Investor Reactions in Construction Sector

This study investigates the effect of presenting integrated reporting elements in annual reports on investor reactions in building construction companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2020. Using a quantitative method with multiple linear regression analysis in SPSS version 18, the study analyzed data from 10 purposively sampled companies. Results indicate that the business model element significantly affects investor reactions, while other elements like organizational description, governance, risks and opportunities, strategy and resource allocation, performance, future prospects, and basic elements of disclosure do not. These findings suggest companies should focus on enhancing their business model disclosures to better meet investor expectations and improve market responses. Highlight: Business Model Impact: Only the business model significantly affects investor reactions. Other Elements: Organizational description, governance, etc., show no significant investor impact. Recommendation: Enhance business model disclosures to meet investor expectations. Keyword: Integrated Reporting, Investor Reactions, Building Construction, Indonesia Stock Exchange, Quantitative Analysis

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.