Firm Returns Research Articles

The oil price uncertainty effect on stock returns of the Indian renewable energy firms under different market conditions

AbstractThis study investigates the oil price uncertainty effect on stock return of the Indian renewable energy firms under different market conditions. We use the Oil Volatility Index (OVX) as a proxy of oil price uncertainty. All renewable energy companies listed on the National Stock Exchange of India are considered. Monthly data are analysed from January 2009 to December 2019 using panel quantile regression. In the whole sample of the renewable energy firms, we find that the impact of oil price volatility on stock return is negative only in extreme market conditions. In subgroups of renewable energy firms, oil price volatility has negative coefficients in most quantiles. The oil price volatility change is decomposed into positive and negative changes to investigate the asymmetric effect. In subgroups of renewable energy firms' analysis, most of the asymmetric effects of oil price volatility are seen in the bearish market condition. The policymakers can use the findings to formulate policies as per the oil price volatility movement to ensure the growth of the renewable energy sector. Investors and portfolio managers can make appropriate strategies based on oil price volatility to maximise the investment return across market conditions.

The Impact of Corporate Spin-Offs on Share Price Movement Empirical Evidence From India

The present study focuses on the effect of spin-off announcements on the stock returns of 24 sample demerged companies in India for the period from 2009-10 to 2018-19. For this purpose, the market model of event study methodology has been applied. The impact of the spin-off is statistically significant on cumulative average abnormal returns of these sample firms for time windows (-2, +2) and (-10, +10) which are 5.088 per cent and 6.609 per cent , respectively, at a 5 per cent level of significance. This study supports the statement that changes in stock returns are strongly associated with the spin-off announcements.

The Moderating Role of Financial Constraints in the Influence of Environmental Sustainability Reporting on the Stock Returns of Firms Listed on the Tehran Stock Exchange

Stock return demonstrates the efficiency of a firm in creating net interests for the shareholders in return for their investment in firm stocks and is influenced by various factors. The present study seeks to investigate the impact of Social Performance Reporting on stock returns considering the moderating role of financial constraints. The present study used data from firms listed in Tehran Stock Exchange selected through purposive sampling over 2012-2019. The present study is applied in terms of the research objective, and multiple regression has been used for data analysis. The Kaplan and Zingales (1997) model has been used to estimate financial constraints in this study, given the current practice in previous domestic and foreign research. Results indicated that Social Performance Reporting had a significant and positive influence on the stock returns of firms listed on the Tehran Stock Exchange. Besides, results demonstrated that financial constraint played a negative moderating role in the relationship between Social Performance Reporting and the stock returns of firms listed in the Tehran Stock Exchange.

Does innovation success reduce the cost of financing? Evidence from private investments in public equity

This paper investigates the relation between a firm's innovation performance and the cost of financing in private investments in public equity (PIPEs). Using patent-based metric data, I find that innovative firms issue securities in private equity placements at a 5.4% lower discount than non-innovative firms. The negative effect of innovation performance on PIPE discounts is more pronounced for firms in R&D intensive industries and firms with higher stock market illiquidity. Channel tests show that innovative firms are more likely to be led by strategic investors who are willing to pay a higher price to support innovative issuers. The results are robust to alternative methods that mitigate endogeneity issues.

The pricing of low emission transitions: Evidence from stock returns of natural resource firms in the GCC

Promoting a green financial sector is imperative to achieve the goals of circular economies. The role of green finance is not only limited to providing robust financing for the transition but is also relevant to sustaining environmentally friendly business models. This research aims to evaluate whether investors demand a risk premium for transitions to low emission firms in countries where high emitters from natural resources-related firms exhibit significant market power. We use a time series sample of firms from six GCC countries between 2011 and 2020 and introduce an emission-based risk factor in the conventional asset pricing framework. Our findings suggest that carbon emissions are systematically priced in the stock returns. Therefore, we argue that the investors will require additional compensation to include low emitters in their portfolios to substitute for more polluting but dominant firms resulting in a higher cost of capital for green firms. We suggest that fiscal interventions in the short to medium term can help in incentivizing the investors to adopt sustainable investment styles.

Investment Decision of Blockchain-Based Traceability Service Input for a Competitive Agri-Food Supply Chain.

Competitive agri-food supply chain (hereafter, AFSC) is an important component of AFSC. In a competitive environment, more and more AFSCs use blockchain-based traceability services (hereafter, BBTS) to improve the traceability level of agricultural products. The investment rules concerning BBTS and the coordination rules in an AFSC are vital issues for many firms who want to adopt BBTS. To explore these laws, we constructed two competitive AFSCs, each of which included a supplier and a retailer. Considering the new changes in consumers’ perception of product quality and safety after using the BBTS, the demand function was modified. Then we built the income functions of chain members under three situations of investment. The research found that: (1) the improvement of customers’ perceived quality by using the BBTS can increase their benefits; (2) when decision-makers want to invest in the BBTS, they should pay attention to consumers’ perceived quality safety factor for their competitive products; (3) when the investment cost is greater than its threshold value, two competitive AFSCs should invest in the BBTS together.

Comparative response of global energy firm stocks to uncertainties from the crude oil market, stock market, and economic policy

In this study, a comparative analysis of the impacts of uncertainties induced by government economic policy and the crude oil and stock markets on the stock returns of 62 energy firms is carried out across different market states. We find that economic policy uncertainty (EPU) has a stronger influence than the two market-based uncertainties. However, the oil market uncertainty (OVX) outperforms the general stock market uncertainty (VIX) for the causality-in-mean, but the reverse holds for the causality-in-variance. Stronger causal impacts are also observed during the normal and bearish market states, in that order. Finally, more significant connection is attributed to the causality-in-mean than the causality-in-variance. Thus, uncertainties, especially the one induced by the economic policy, should not be jettisoned in modeling and forecasting stock returns. The regime-switching regression model also supports the role of uncertainties in predicting the stock returns of the energy firms, with particular emphasis on adverse impact in most regimes. The fact that causality is stronger at the middle and lower quantiles also suggests the poor risk-hedging power of the stocks at the normal and bearish market states.

Evaluation of the Symmetrical and Asymmetrical Causality Relationship Between Bitcoin Energy Consumption and Stock Values of Technology Companies

Energy production is a phenomenon that has always preserved its importance for the history of humanity, as well as where the energy is spent and its consumption are also important. This study examined the causality relationship between Bitcoin energy consumption and Apple, Dell Technologies, Lenova Group, HP, Quanta Computer, Compal Electronics, Canon, Wistron and Hewlett Packard Enterprise has been taken into account to represent technology companies’ stock market. In the analysis, daily price data for the period 12.02.2017-07.02.2021 were used. Toda-Yamamoto (1995) symmetric causality test and Hatemi-J (2012) asymmetric causality test were used for used to determine the relationship between Bitcoin energy consumption and technology companies’ stock values. According to the results of the Toda-Yamamoto (1995) causality test, it has been found that there is a causality from Bitcoin energy consumption to Apple's stock value; according to the Hatemi-J (2012) asymmetric causality test results, it has been determined that there is a causality from Bitcoin energy consumption positive shocks to Apple, Dell Technologies, Lenova Group, HP, Quanta Computer, Compal Electronics, Canon, Wistron and Hewlett Packard Enterprise stock values negative shocks and from Bitcoin energy expenditure negative shocks to Hewlett Packard Enterprise negative shocks. According to the results of the study in general, it is seen that the change in Bitcoin energy consumption has an effect on the firm returns of the companies that sell the necessary tools for bitcoin energy production. From this, it can be commented that bitcoin mining is also effective on the stock returns of technology companies as well as many financial factors.

Bank information monopolies and hold-up effects: International evidence

We examine whether hold-up effects are confined to the U.S. market. Using an international sample, we investigate whether firms with access to the public debt market pay lower loan spreads. We hypothesize that when firms issue public bonds, they reveal private information of their credit risk, and thus the monopoly power of inside banks decreases, resulting in lower loan spreads. We find extensive evidence to support this conjecture. We also find that hold-up effects are stronger during recessions and more significant in countries with stringent bank regulations but insignificant during banking crises and the 2007–2008 financial crisis.

Business groups and corporate bond costs: Evidence from China

We examine the effect of business groups on corporate bond costs. Using a sample of corporate bonds issued by Chinese privately owned firms from 2007 to 2019, we show that business group-affiliated firms issue bonds at higher yield spreads than independent firms. The results hold after addressing the endogeneity issues of self-selection, selection bias, and financing decisions. We do not find that corporate governance plays a role in mitigating the negative impact of business groups on bond costs. Business groups negatively affect bond costs through tunneling and risk spillover channels, whereas financing advantage is not a transmission channel.

Understanding, mapping and reporting of climate-related risks among listed firms in Sweden

ABSTRACT We study the mapping and reporting of climate-related risks among firms listed on the NasdaqOMX stock exchange in Stockholm in four goods-producing industries. Our study contains two parts: (i) a study of the firms’ external communication through their annual reports, sustainability reports and webpages, and (ii) a follow-up survey of the top management team. The survey contains quantitative questions and free text answers, which provide additional insights into the mapping and risk-handling of climate-related risks among the firms. We find that firms are likely to engage in some form of mapping and reporting of climate-related risks, but there are variations among the firms. Furthermore, the management of climate-related risks appears to be a residual issue for most firms with little active engagement from the management team or board of directors. Key policy insights Public policies and private initiatives, such as the EU’s Non-Financial Reporting Directive/Corporate Sustainability Reporting Directive (NFRD/CSRD), the EU Taxonomy for Sustainable Activities, and Task Force on Climate-related Financial Disclosure (TCFD), may redirect and accelerate investments promoting a low-carbon and climate-resilient economy. Although most firms map and report climate-related risks, the understanding of the nature of these risks, of underlying problems, and of what a climate transition implies, varies across firms and industries. The success of the EU’s NFRD/CSRD, the EU Taxonomy for Sustainable Activities, and TCFD requires an improved understanding of climate-related risks among the firms and a more proactive engagement of the management team. Policymakers must provide firms with additional guidance aimed at improving their understanding of climate-related risks and thus their capacity to manage these risks. Firms need to, individually and jointly, revise their theoretical and empirical understandings of climate-risk management and especially the role climate-related risks play in the new policy setting. The TCFD has an important role to play, but as a voluntary initiative, it is insufficient to generate change among all firms.

Corporate social responsibility (CSR) performance and stakeholder engagement: Evidence from the quantity and quality of CSR disclosures

AbstractWith increasing stakeholders' demand for information on corporate social responsibility (CSR) performance and a growing number of firms issuing standalone CSR reports, this study examines the relation between CSR performance and the quantity and quality of CSR disclosures. Drawing on signaling and political legitimacy theories of information disclosure and using a US sample of 2774 standalone CSR reports from 2003 to 2015, we find better CSR performing firms issue longer CSR reports and provide incremental information in their CSR reports relative to their annual financial reports. Furthermore, the textual content in their CSR reports is less focused on short‐term issues, reflecting higher disclosure quality. In contrast, poor CSR performing firms tend exhibit lower disclosure quality as their CSR reports use more uncertain words. Our study contributes to the understanding of how CSR performance affect stakeholder engagement through the characteristics of textual content in standalone CSR reports.

Information Sharing between Tax and Statutory Auditors: Implications for Tax Audit Efficiency

ABSTRACT We examine whether tax audits become more efficient if tax auditors have access to information about statutory audit adjustments. To this end, we extend the standard tax compliance game by including a statutory auditor and analyze the strategic interactions among a firm issuing financial and tax reports, a statutory auditor, and a tax auditor. We show that granting the tax auditor access to information on statutory audit adjustments can, in some cases, increase tax revenues while simultaneously decreasing tax audit frequency. Thus, more information sharing between statutory and tax auditors could be a policy instrument to combat tax evasion and increase tax audit efficiency. However, the tax audit efficiency enhancing effect comes at the cost of a reduction in financial statement quality as the probability of overstated financial assets increases. Moreover, depending on the importance of firms' financial statement valuation, the additional information may also reduce tax revenues. The regulator must, therefore, carefully weigh the potential efficiency gains from information sharing on statutory audit adjustments that are derived in this study against the potential efficiency losses.

EFFECT OF RIGHTS ISSUE, BONUS ISSUE AND STOCK SPLIT ANNOUNCEMENTS ON SHARE RETURNS OF FIRMS LISTED IN NAIROBI SECURITIES EXCHANGE

Purpose: The objective was to find out the effect of rights issue, bonus issue and stock split announcements on share returns of firms listed in Nairobi Securities Exchange.
 Materials and Methods: Event study research design was used in the study. Target population comprised all companies in the Nairobi Securities Exchange register that announced bonus issue, rights, and stock split from 2014 to 2020. There were 6 companies which announced rights issue, 17 companies which announced bonus issue and 2 companies which announced stock splits. The study employed event study methodology whereby collection of secondary data was done for 30 days before and after respectively for each bonus issue, rights issue and stock split announcement. Statistical bias was eliminated by using normality and autocorrelation tests there after the Mean Adjusted Return Model was used in determining expected returns and abnormal returns.
 Results: In all the companies there were abnormal returns which prove that the announcements had an effect on share returns, Sixteen companies witnessed increase in abnormal returns while nine firms witnessed decline in abnormal returns following the announcements. To whether the effects were significant null hypothesis postulating that the announcements had significant effect on share returns of firms listed in Nairobi Securities Exchange was accepted for twenty four firms and rejected for one firm. The conclusion was that right issue, bonus issue and stock splits announcements have a significant effect on Share returns.
 Unique contribution to theory, practice and policy: The study recommendations include that; the Nairobi Securities exchange should support research by providing data free of charge for interested researchers. The Capital Markets Authority and NSE should educate investors on the investment opportunities available and this will increase local investors in the bourse, currently most investors are foreigners. NSE and CMA should beef up surveillance in the market so as to curb insider trading especially when companies are about to make any form of corporate announcements.

The Role of Accruals Anomaly on Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange

The accrual anomaly arises due to the market mispricing of the total accruals and their components and the investors fail to incorporate the differential persistence of the cash flow components and accruals of firm earnings. This study sought to determine the effect of accruals anomaly on stock market return of non-financial firms listed on the Nairobi Securities Exchange. The study adopted positivism as data collection and hypothesis development and testing was achieved. The study used quantitative research design to correlate study variables using mathematical analysis methods. Correlation results indicate that accrual anomaly was negatively and significantly associated to stock market return of non-financial firms. Regression results for the static model indicate that accrual anomaly and stock market return of non-financial firms is negatively and significantly related. The results for the dynamic model indicate that accrual anomaly and stock market return is negatively and significantly related. The study concluded that accruals anomaly has a negative and significant effect on stock market return in non-financial firms on the Nairobi Securities Exchange. The analysis concluded that the accrual anomaly has implications because firms with high reported accruals exhibit lower stock market returns. High valuations of the investors are related to accruals because of the accounting distortions. The study recommends that having knowledge regarding accrual toward stock return in the future will help the investors to minimize the earning prediction error so that investors can make appropriate decision making. The study recommends for the investors to implement the investment strategy, which to short (sell) low accrual stocks and long (buy) high accrual stocks in Nairobi Securities Exchange with prediction that the stock gains higher return in the future based on the prevailing investor projections. Keywords: Accruals Anomaly, Stock Market Return & Non-Financial Firms Listed

Investor Sentiment and Stock Market Return of Non-Financial Firms Listed on the Nairobi Securities Exchange

Investor sentiment is associated with attitude, thought, feeling, mood, belief, judgment, or expectation of market performance. The sentiment feeling is associated with investors' cognitive comparisons in their investment as well as their experience in making an investment decision. This study examined the effect of investor sentiment on stock market return of non-financial firms listed on the Nairobi Securities Exchange. The study adopted positivism as data collection and hypothesis development and testing was achieved. The study used quantitative research design to correlate study variables using mathematical analysis methods. The correlation results indicated that investor sentiment portrayed a positive association to stock market return. Regression of coefficients of the static model results indicate that investor sentiment and stock market return of non-financial firms listed on the Nairobi securities exchange is positively and significantly related. The results implied that there exist a positive and significant relationship between investor sentiment on stock market return since their coefficient values were positive. The regression coefficients result of lagged stock market return and stock market return was positively and significantly related. The regression of coefficients results indicate that investor sentiment and stock market return is positively and significantly related. The study concluded that investor sentiment has a positive and significant effect on stock market return in non-financial firms. These results imply that when investors are more optimistic about the market generating excess returns, their extreme optimism leads to more speculative activities that tempt them to invest even more. The study also shows that sentiment is relatively correlated with stock returns significantly over time. The study recommends that by taking the investor sentiment into account as a significant determinant of stock market volatility in asset price models, investors can enhance their stock returns. The results can inform on policymakers’ efforts to stabilize stock market volatility and uncertainty in order to protect investors’ wealth and attract more investors. Keywords: Investor Sentiment, Stock Market Return & Non-Financial Firms

Size premium or size discount? – A dynamic capital mobility based interpretation

PurposeThe size effect that there exist return differences between small market-cap firms and large market-cap counterparts in the stock market has become one of the most controversial capital market anomalies. This paper aims to interpret this effect, including both the size premium and the size discount.Design/methodology/approachA dynamic capital mobility model (DCMM) is proposed, and the model’s explanatory ability is validated via simulation.FindingsThis study’s simulation results indicate that the observed size effect can be originated from the combination of the pure size effect and the investors’ herding behavior. Although the size premium, that average returns of small firms are higher than those of large firms, is more prevalent in the stock market, this study’s model implies that the size discount is also possible, which is largely an empirical issue. The pure size effect per se cannot reproduce the size premium. Only if the herding effect dominates the pure size effect would there exist the size premium.Originality/valueAlthough the literature provides miscellaneous explanations for the size effect, they are still inconclusive. So far there has been no theory to directly investigate the size effect and to explicitly explore the impact of investors’ trading behavior on the size effect. To the best of the author’s knowledge, this paper fills in this gap and proposes a DCMM to interpret the size effect for the first time. In addition, while the literature focuses on the size premium only, this study covers not only the size premium but also the size discount.

Capital Market Reactions to Managerial Framing of Emerging Strategic Issues

Emerging strategic issues in firms’ environment, such as trends toward sustainability or digitalization, may threaten organizational survival and require strategic responses. The recent literature shows that a critical challenge in times of emerging issues is to convince external stakeholders, such as investors, of the need for strategic change. Thus far, however, we know little about how managers should frame emerging strategic issues vis-à-vis external stakeholders, such as analysts or investors, to achieve positive resonance and garner support for their strategies. To address this shortcoming, in this paper, we investigate how the managerial framing of environmental sustainability as an important emerging issue shapes capital market responses. We find that while a higher frequency of mentioning environmental sustainability is connected with a more negative capital market response, a positive tone is linked with a positive one. Contrary to expectations, we find that a positive tone is particularly effective in driving positive capital market responses for firms with low performance in terms of environmental sustainability. Moreover, we show that more uncertain language positively moderates the relationship between a positive tone and capital market responses when managers frame the issue of environmental sustainability. Overall, by showing how managers can elicit positive capital market responses to emerging strategic issues through framing, our study makes significant contributions to the literature on strategic change, framing, and corporate sustainability.

Why do firms issue callable convertible bonds? A critique of the “backdoor equity financing” theory

We revisit Stein (1992)’s model and demonstrate that it provides an insufficient justification for the use of callable convertible bonds as financing instruments. A standard convertible bond solves the firm’s financing problem in both the simple and extended versions of the model. More generally, convertibles have little relevance within this model because the firm can finance efficiently with a package of equity and short-term straight debt, the components of which are dynamically adjusted. This package becomes a superior financing strategy in comparison to convertible debt if one relaxes the model’s assumption that the firm can always force conversion.

WHY INVEST GLOBALLY IN FAMILY FIRMS

Purpose- Family firms have a significant economic role in many countries around the world. Family firms make a significant contribution to World GDP and employ a significant part of the global workforce. The scope of this study covers the top 25 largest and publicly owned family firms announced by Ernst & Young’s 2021 Report for Family Businesses. These 25 family firms generated more than 2 trillion USD and employed 6.5 million in 2021. This empirical study aims to investigate the excess stock returns of family firms over the related country stock market indexes and the risks (betas) for the period between 2002 and 2021. Therefore, this study explores the question of “why invest globally in family firms and whether this investment pays off with higher returns and less risk”. Methodology- The World's Largest Family Companies" list is published every other two years by Ernst & Young and the last issue was published in 2021. The world’s largest family companies list includes both private and publicly owned family firms. This study employs 25 world’s largest family firms after the exclusion of privately held family firms. The monthly stock prices of family firms, related country stock market index values, and global stock market index values are obtained from Refinitiv Eikon (Reuters) database for the period between 2002 and 2021 (20 years). Therefore, a total of 9120 observations are extracted for this empirical study. Eviews-10 is utilized for all econometric analysis. Findings- This study investigates whether an individual or intuitional investor can earn more than the average return of the stock markets by investing in publicly traded family firms meanwhile exposing less risk. The empricial results reveal that Maersek shows 354% (beta of 1.18) excess return over the 20 year period and followed by Hanwha with a 335% (beta of 0.69) excess return. Later, all family firms are grouped based on country of headquartered and 7 country portfolios are formed. The highest excess returns are provided by South Koean portfolio (an excess return of 189% with a beta of 0.83) and it is followed by Indian portfolio (an excess return of 174% with a beta of 1.0). Finaly, a best performer portfolio is formed by the 10 family firms with highest excess returns. This portfolio provides a 131% excess return with a beta of 1.18 over 20-year peirod. Conclusion- The empirical results show that the individual firm returns and portfolio returns of family firms are higher than the returns of the stock market indexes. Those who invest in family businesses get higher returns with less risk. Investments in publicly traded family firms pay off. Keywords: Family firms, global investment, return, risk, stock markets. JEL Codes: G10, G11, G15