Announcement Returns Research Articles

Special issue announcement

Special issue announcement

Testing of Semi–Strong Form of Efficiency: an Empirical Study on Stock Market Reaction Around Dividend Announcement

Purpose: The purpose of this study is to examine the efficiency of the Indian stock market of the Nifty IT index over the dividend announcement for five years from 2016 to 2020. Theoretical framework: A reward procured by the shareholders on their equities is, of course, the dividend. A leading area of concern is the dividend announcement. According to the theory of efficient markets, stock prices accurately reflect all available information. This demonstrates that the prices are correct and fair. The market should therefore respond immediately to an event in this instance the dividend announcement. Therefore, depending on publicly available information will not provide investors with the possibility to consistently generate extraordinary returns. Design/ methodology/ approach: The study attempts to validate the event study approach while investigating the semi-strong form of efficiency. Daily share prices of five companies out of ten of the Nifty IT index were observed to test the Efficient Market Hypothesis. 31 days event window has been employed to calculate the abnormal returns of the selected sample around dividend issue announcements also t-test was applied to assess the level of significance. Findings: The study found that the stock market was efficient in its semi strong form and the investors could not make excess returns over the dividend announcement of the Nifty IT index. Research, Practical & social implications: This study eliminates the possibility for investors to beat the average market returns. It is significant since it affects stock market investment choices. Originality/ Values: The majority of studies are only able to analyse the overall average abnormal return and cumulative average abnormal return of chosen companies; it is difficult to locate studies that focus on the abnormal return for each individual company. The t test for each company-wise abnormal returns, overall average abnormal returns, and cumulative average abnormal returns were acquired and tested at the 5% level of significance in order to determine the significance.

Choosing Your Partners Wisely: Investigating the Role of CSR in Strategic Alliances

In the face of growing concerns over climate change and current COVID-19 crisis, interest in corporate social responsibility (CSR) issues has been growing significantly among academics and practitioners alike. However, the role of CSR in strategic alliances has yet to receive considerable attention from management scholars. This study investigates whether and how CSR of a partner in a strategic alliance, has an effect on the focal firm’s value. Drawing on the stakeholder-based view of strategic alliances and advancing relational capabilities perspective on CSR, we posit that, faced with information asymmetry and collaborative challenges, focal firm can rely on CSR performance or stakeholder relationships of a prospective partner firm to make judgements about value creation potentials of the alliance. We argue that CSR of a partner has a positive effect on the focal firm’s value by optimizing partner selection and embodying relational capabilities that focal firm can leverage on during the partnership. Empirical evidence is established by using a sample of bilateral alliances between publicly traded firms in the US during the period of 1999-2013. Our results show that CSR of a partner is positively associated with the focal firm’s announcement returns. The positive effect of partner’s CSR on the focal firm’s returns is found to be more salient when information asymmetry is high. In addition, the marginal effect of a partner's CSR on the announcement return is attenuated by the focal firm’s previous general alliance experience.

Earnings Growth and Acquisition Returns: Do Investors Gamble in the Takeover Market?

AbstractWe document a strong positive initial market reaction to merger announcements from bidders with either large earnings growth or significant earnings decline, relative to those with neutral earnings change, reflecting a U-shaped pattern between bidders’ earnings growth and announcement returns. However, the higher initial returns for bidders with earnings decline subsequently reverse, whereas the higher returns for bidders with high growth do not. We further show that the return patterns are driven by a tendency for retail investors to gamble that merger and acquisition deals initiated by poorly performing bidders will generate high synergies.

Volatility of implied volatility and mergers and acquisitions

In this paper, we examine how uncertainty about risk, based on firm estimates of volatility of implied volatility (VIV) affects mergers and acquisitions. We show that uncertainty about risk, captured by firm estimates of volatility of implied volatility (VIV) affects both bidder and target announcement returns and the method of payment. For high-risk firms, bidder firm VIV negatively effects the likelihood of a cash-only offer. For low-risk firms, bidder firms (target firms) VIV negatively (positively) affects bidder firm's announcement returns. Target announcement returns for low-risk firms are negatively related to bidder firm VIV. When we control for the volatility level using firm estimates of average implied volatility, VIV effects on announcement returns are sustained. However, average volatility effects subsume bidder firm VIV effects on the method of payment. Furthermore, high risk bidder firms revise their offer price upward with an increase in bidder VIV for non-cash offers.

Financial constraints and financing sources in mergers and acquisitions

We study the effects of financing sources and financial constraints in mergers and acquisitions. We explicitly distinguish between methods of payment and financing used in takeovers and find that financial constraints have a strong influence on choices of both payment and financing methods. Financially constrained firms are less likely to pay for acquisitions in cash. Greater financial constraints are associated with greater use of equity financing, followed by internal funds, with debt as the least preferred financing alternative. Consistent with agency theory, more constrained bidders experience higher takeover announcement returns. However, we find financing sources to have little impact on abnormal returns.

Sentiment, Attention, and Earnings Pricing

We find that investor sentiment restrains the predictability of earnings news on announcement returns but the constraining effect of sentiment on the predictive power of earnings news diminishes as sentiment falls. We document that investor attention works as an important channel in the relation between investor sentiment and announcement returns. Investor attention enhances the immediate price reaction to earnings news by curbing the impact of sentiment on the predictive power of earnings news. Our findings reflect the joint effect of attention and sentiment on the source of excess returns documented in the prior earnings-based market anomaly literature.

Analisis Pengaruh Right Issue Dan Dividen Terhadap Pergerakn Harga Saham Di Bursa Efek Indonesia (Studi Kasus KOMPAS100)

The purpose of investors investing in the capital market is to obtain rewards or income from the funds invested. Investors who invest their funds in a company's shares aim to earn income in the form of dividends and returns. This study aims to analyze the effect of right issue and dividend announcements on stock price movements between before and after the announcement date of rights issue and dividends, and analyze the effect of right issue and dividend announcements on expected stock returns. The population of this study amounted to 10 companies that issue rights issues and dividends on the KOMPAS100 Index which are listed on the Indonesia Stock Exchange (IDX). The sampling technique used was purposive sampling. The sample used is companies that issue rights issues and dividends in the period 2016-2020. The data analysis technique in hypothesis testing was carried out using the paired sample t-test difference test because the data were normally distributed. The results of this study indicate that there is no significant effect of the rights issue on stock price movements. As for dividends, it shows a significant difference to stock price movements.

Firm-level investor sentiment and corporate announcement returns

Behavioural models of investor behaviour propose that sentiment affects investors’ responses to corporate announcements. As beliefs can be cross-sectionally heterogeneous, firm-specific investor sentiment may differ from aggregate levels of investor sentiment. We provide empirical evidence about the explanatory power of both firm- and market-level investor sentiment for corporate announcement returns. We demonstrate empirically that firm-level investor sentiment has marginal explanatory power beyond market-level investor sentiment for corporate announcement returns, turnover and long-run reversals. Previous studies, which focus on market-level investor sentiment measures are likely to have under-stated the economic magnitude of the role that sentiment plays in corporate announcement returns.

Price reaction to rights issue announcements of family firms

This study examines the effect of family control on the price reaction to rights issue announcements of publicly listed firms in Indonesia during the period of 2005–2018. The study uses agency theory, which discusses the conflict of interest between controlling/majority and non-controlling/minority shareholders. The results show that the price reaction to the right issue announcements for publicly listed firms in Indonesia is statistically significantly negative. The mean of cumulative abnormal returns (CAR) falls between –1.40% (for the Day 0 window period) and –3,43% (for the –5 to +5 window period). Further examination indicates that family control is associated with a more negative price reaction to these rights issue announcements. Specifically, for rights issue announcements of family firms, the mean cumulative abnormal returns (CAR) fall between –1,98% at announcement day (Day 0) and –5,23% for the event window period (–5 to +5). Meanwhile, for rights issue announcements of non-family firms, the current study found statistically insignificant price reactions to rights issue announcements for all the event window periods. These findings suggest that investors perceive higher agency problems among family firms where the family controlling shareholders tend to misuse and tunnel the rights issue funds for their own private benefit.

Special issue announcement

Special issue announcement

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.

SPAC merger announcement returns and subsequent performance

AbstractSpecial purpose acquisition companies (SPACs) are created to raise capital and then find non‐listed operating companies with which to merge. While most of the extant research has focused on SPAC initial public offerings, we study what happens when SPACs announce business combinations. Our analysis of 236 ‘deSPACs’ completed between January 2012 and June 2021 in the United States documents an average short‐term announcement return of +7.4% and a 1‐year abnormal return of −14.1% (−18.0% over 2 years) for public investors beginning from the merger announcement. Short‐term returns decrease with longer times from initial public offering until announcement.

Announcement of Acta IMEKO second issue 2022

Announcement of Acta IMEKO second issue 2022

Information Intermediaries: How Commercial Bankers Facilitate Strategic Alliances

AbstractWe investigate how bankers use information from lending relationships to help borrowers find partners for strategic alliances. Firms that have borrowed from the same banker or share an indirect connection through a network of bankers are significantly more likely to enter an alliance. Consistent with bankers overcoming informational frictions, their ability to facilitate alliances decreases with banker-network distance, and is stronger for opaque borrowers. Firms connected to more potential partners via banker networks enter more alliances. These alliances are associated with positive announcement returns, and brokering banks are more likely to receive future underwriting mandates.

Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes

AbstractIn recent years, the majority of additions to and deletions from the S&P 500 index have been stocks that were previously or subsequently included in the S&P 400 index. The announcement returns of these changes have been the opposite of what has been documented for all S&P 500 additions and deletions in an extensive literature. During 2016–2020, such “upward additions” to the S&P 500 index resulted in an average announcement excess return of –2.48% over a 3‐day period, while “downward deletions” to the S&P 400 index resulted in an excess return of +1.37%. We explain these new results by the increasing total institutional ownership of S&P 400 stocks. Our results thus show the increasing benefits of being included in the mid‐cap S&P 400 index relative to being included in the large‐cap S&P 500 index.

The Signaling Effect of Bonus Issue Announcements in the Korean Culture Contents Industry

본 연구는 국내 문화콘텐츠 기업들의 무상증자에 대한 주식시장의 반응을 살펴보고 이를 통해 무상증자라는기업의 주요 재무정책에 신호전달효과가 존재한다는 신호가설이 성립하는지를 검증하였다. 또한 문화콘텐츠 기업들의 무상증자가 전체 코스닥 기업의 무상증자에 대한 일반적 주가 반응과 유사점 또는 차이점을 보이는지를 비교 분석하였다. 이를 위하여 최근 자료인 2011년부터 2020년 사이에 실시된 국내 상장기업들의 무상증자 자료를사용하고 사건연구방법론을 적용하여 실증분석을 진행하였다. 분석결과, 첫째, 문화콘텐츠 기업의 무상증자와 관련한 단기간 반응으로는 공시 전일에 양(+)의 주가 반응이 발견되었는데 이는 공시 다음날에 음(-)의 주가 반응을통하여 사라졌다. 공시 당일에는 유의한 주가 반응이 나타나지 않았다. 둘째, 문화콘텐츠 기업의 무상증자와 관련하여 장기간으로 검증기간을 확대하여 분석한 결과, 주가가 유의하게 지속되는 모습이 발견되지 않았다. 이는 문화콘텐츠 기업의 무상증자와 관련하여 단기 및 장기 모두에서 신호전달효과가 존재하지 않는다는 것을 의미한다. 이와 같은 결과는 동일한 기간을 이용한 코스닥시장 전체의 무상증자에 대한 주가 반응 분석에서 단기적으로는무상증자 공시 전부터 지속적인 주가 상승이 발견되어 신호가설을 지지하는 모습과는 상이한 결과이다. 본 연구는문화콘텐츠 기업에 대한 투자자의 투자의사결정 및 경영자의 재무의사결정에 유용한 시사점을 제공해줄 것으로 기대되며 문화콘텐츠 산업에 대한 이해도를 증진시키는데 도움을 줄 것으로 기대된다.

Analyzing the stock market performance of central public sector enterprises disinvested through public offering mode: Indian evidence

PurposeThe present study aims to examine the short-term effect of disinvestment oriented IPOs and FPOs on the stock market performance of Indian central public sector enterprises (CPSEs), which divested their equity between 2000 and 2017.Design/methodology/approachThe analysis of stock price reaction is conducted for listing dates only in the case of IPOs and three different dates in the case of FPOs through the event study methodology. The three-event dates related to FPOs are public notification date (PND), issue announcement date (IAD) and price band date (PBD).FindingsOverall empirical analysis indicates that investor sentiments are generally insignificant prior to and posts the PND (first date). The second major date of announcement that is (IAD) is new information in the market and returns are found to be significantly negative across both the periods that is before and after IAD. Thus, the analysis depicts strongly negative investor sentiments in the case of IAD. These results are further substantiated by negatively significant CAR (cumulative abnormal returns) values for both the pre and post-event windows of PBD as well.Research limitations/implicationsEmpirical analysis concludes that investors do not stand a chance to gain abnormal returns through initiating positions in the stocks of CPSEs during the alternative event dates analyzed.Originality/valueSince the year 2000, disinvestment through public offering has gathered momentum, and this mode accounts for approximately 62% of the collective disinvestment funds generated by the government of India till now. But there have been very limited research studies on the market performance of disinvested CPSEs. This analysis provides new empirical evidence for the market reactions of retail investors in response to the sale of equity by the Indian government in CPSEs.

Announcements of debenture issues and the impact on stock returns in Brazil (1989-2020): A bootstrap-based study

Announcements of debenture issues and the impact on stock returns in Brazil (1989-2020): A bootstrap-based study

Responses in divergence of opinion to earnings announcements: evidence from American depository receipts

PurposeThe purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.Design/methodology/approachThe authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.FindingsThe authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.Originality/valueThis paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.