Significant Average Abnormal Returns Research Articles

DAMPAK PENGUMUMAN KEBIJAKAN BI 7 DAYS REPO RATE PADA SAHAM YANG TERDAFTAR DALAMJAKARTA ISLAMIC INDEX

This research aims to find out and explain Jakarta Islamic Index market reaction caused by BI 7 Days Repo Rate announcement by Bank Indonesia on April 15th , 2016. The approach used in this research is quantitative approach by using event study method which is the approach that is specialized to analyze a particular event that is believed to have an impact or reaction. Data used is secondary data including announcement data, stock price, trading volume during the period of observation and period of estimation. The object of the research is all the issuer that listed in Jakarta Islamic Index. Period of observation is 31 days started from 15 days before the event date to 15 days after the event date meanwhile the period of estimation is 55 days before period of observation. The focus of the research is to see the reaction shown by the change of Average Abnormal Return and Trading Volume Activity using one sample t-test and paired sample t-test. Data processing used a statistical tool of Stata version 14 by determining level of significance of 5%. The results of the research show that there is a significant average abnormal return around the date of announcement and there is a significant difference in trading volume activity before and after the right issue.Keywords: BI 7 Days Repo Rate, Sharia Stock, Event Study, Average Abnormal Return, Trading Volume Activity

Market Reaction to The Announcement of General Election Result of The President and Vice President of Indonesia in 2019 (Study on LQ 45 Stock Index on The Indonesia Stock Exchange)

This study aims to determine the impact of political issues on market reaction when announcing the results of the 2019 Indonesian president and vice president election. The population in this study are all companies listed on the LQ45 Stock Index on the Indonesia Stock Exchange from February 2019 to July 2019. Sample taken by using the census method of 45 companies. The type of data used is quantitative and qualitative data obtained from secondary sources collected by the nonparticipant observation method. To test the information content, this study uses an event study approach. In this study there were two periods of events tested, namely the announcement of the results of the presidential and vice presidential elections in 2019 based on the quick count of the Survey Institute and the real count of the General Election Commission. To test the significance of abnormal returns the One Sample Test is used. The results of this study indicate that at the time of the announcement of the general election results based on the Survey Institute's quick count, there was a significant positive average abnormal return on the second day after the event date, while at the announcement of the general election results based on the General Election Commission's real count, there was no abnormal average significant return after the event date. The results concluded that the market must carefully search for information and be able to predict situations that are influenced by political issues to avoid risk. Keywords: event study, abnormal return, market reaction, political issues DOI : 10.7176/EJBM/12-3-15 Publication date: January 31 st 2020

DOES MARKET REACT TO TAX REDUCTION NEWS? AN EMPIRICAL STUDY ON CORPORATE TAX REDUCTION OF BANGLADESH IN 2017-18

Purpose – This study tries to investigate the capital market reaction to the corporate tax reduction announcement (37.5% from 40%) in Bangladesh for publicly listed Banking, Insurance and Financial Institutions of 2017-18. Methodology – This study applied an event study approach to identify any significant average abnormal returns as well as cumulative average abnormal returns of all the publicly listed Banks, Insurances and Financial institutions around the announcement period. Findings – Insignificant average abnormal return (AAR) experienced in case of Banking and Insurance industry on event day, except the financial institutions which have generated a statistically significant abnormal negative return on announcement day. The combined AAR of all three sectors has also generated statistically insignificant return around event windows which suggest that investors did not consider tax reduction news as valuable information for investment decision nor considering it as an essential factor of share value. Limitation – The study did not consider any possible extraneous variable that could result in insignificant reactions. Practical Implication – The findings of this research would considerably contribute to the financial and economic policy formulation while taken into consideration the possible impact of the policy over the capital market of Bangladesh. Originality – This study makes a considerable input to the research in the area of taxes linked to the behavioural finance applying the unique variable of investor’s reactions.

Stock Price Reactions on NASDAQ Stock Exchange for Special Dividend Announcements

Announcing dividend pay-out policy by a company will signals market firm’s future prospects and changes its stock prices according to dividend signalling theory. By analysis the effect of special dividend announcements for 5 companies listed in NASDAQ for the period of 2014-2018, this study investigates the stock price reactions to special dividend announcement for 40 days around the event and challenges dividend signalling theory. The empirical results calculated both in discrete and logarithmic forms. Only few disordered significant abnormal returns and average abnormal returns occurred according to the t-test. The results show that shareholders do not gain value from announcement of special dividend in NASDAQ stock exchange market. That Results indicated from adjusted market model in this research do not support dividend-signalling theory Hence do not confirm that the announcement of dividend has significant effect on price of shares. In general the results consistent with the Miller and Modigliani (1961) dividend irrelevance hypothesis.

Market Reaction to Exchange Listings of Cryptocurrencies

Cryptocurrency markets operate at a global scale and are lightly regulated compared to traditional securities markets. Cryptocurrencies like Bitcoin trade across multiple secondary markets that differ significantly in term of liquidity, governance and trust. This study explores 327 exchange listings of 180 cryptocurrencies on 22 different cryptocurrency exchanges and examines the resulting price effects using event study methodology. The results show a significant average abnormal return of 5.7% on the day of the listing event and 9.2% in the window of three days before until three days after the listing. The effects clearly differ for individual cryptocurrency exchanges, with listings on only a few exchanges yielding significant positive short-term abnormal returns of up to 25.5% on the day of the listing. Other exchanges show no significant effects at all or even significant negative returns, which suggests informed trading or market manipulation. Additional tests show that higher market capitalization in combination with lower trading volume leads to higher abnormal returns at exchange listings of blockchain-based assets.

Wealth effects on cross-border acquisition firms from emerging economies

Cross-border acquisitions (CBAs), as a corporate expansion strategy, are being espoused by emerging market firms (EMFs) to overcome their competitive disadvantage at the global level. The objective of this paper is to analyse the wealth effects of cross-border acquisition announcement on the acquiring firms from emerging economies during the period of 2001–17. Wealth effects have been measured in terms of short-term change in equity prices (investors' reaction) around the public announcement of 553 and 125 overseas acquisitions by Indian and Chinese listed firms respectively. The investors' reaction to the acquisition of a foreign target has been captured using the event study methodology. Further, a disaggregated analysis has been conducted to gauge the impact of various deal-specific factors, the legal structure of the target firm and the development status of the target country on the wealth creation potential of a cross-border acquisition.Both Indian and Chinese investors have responded favourably to the announcement of international acquisitions as exhibited in significant and positive average abnormal returns of 0.71% and 0.23% respectively on the event day. Further, it is revealing to note that investors in these economies differ widely with regard to their perception pertaining to the method of payment and acquisition strategy. At the same time, the extent of wealth creation is higher when acquired firms are based in developed economies possessing high quality resources and advanced technology along with better institutional and regulatory milieu; Indian as well as Chinese markets have experienced larger abnormal returns on acquiring advanced vis-à-vis developing market firms.

INDONESIAN CAPITAL MARKET REACTIONS FOR THE ELECTION OF DONALD TRUMP AS UNITED STATES PRESIDENT (EMPIRICAL STUDY ON MULTINATIONAL COMPANIES LISTED ON THE INDONESIA STOCK EXHANGE)

This study aims to determine the market reaction to the announcement of the Donald Trump as the elected President of the United States, as seen from the performance of the shares of multinational companies on the Indonesia Stock Exchange (BEI) and tests market efficiency in a half-strong form. This research uses purposive sampling technique with samples of 24 multinational companies and uses a market model to calculate abnormal return. The results show that first, there are significant average abnormal returns at t-6, t-4, t-3, t-2, then at t + 1 to t + 7 and negative cumulative average abnormal returns. Second, there are smaller but significant average abnormal returns after Donald Trumph's announcement as President of the United States than average abnormal returns before the announcement during the window period. Third, trading volume activity decreases significantly after the announcement of Donald Trump as the elected President of the United States. The results of the research prove that the market reacts to the announcement of Donald Trump as the elected President of the United States or it can be said that the announcement has a negative information content on the performance of the stock market represented by the stock performance of multinational companies. In addition, these results prove that the Indonesian capital market is not efficient in half-strong form due to information leakage and reaction that is quite slow in responding to the announcement of Donald Trump as the elected President of the United States.

The impact of fintech M&A on stock returns

Technological development and digitalization plays a crucial role in financial sector by allowing firms to create value in a rapidly changing environment. The acquisitions of firms related to financial technologies are one of the ways to obtain vital knowledge. In order to identify the fintech companies we are looking at firms that are involved in business activities in both the IT and financial sectors. By examining the growing role of fintech firms in the recent mergers and acquisitions from an investor point of view, this paper contributes to the existing literature by investigating the post-acquisition performance of the acquirer firms measured by abnormal returns. We discovered significant positive average abnormal return after acquisition of fintech companies in the short-term and negative average abnormal return in the long-term using event study methodology. The specifics of cross-border acquisitions, the level of the domestic market development of the acquirer, and other characteristics of M&A deals are considered in order to explain the reaction of investors to announcements of fintech firms’ acquisitions. The determinants of corresponding M&A deals in emerging and developed markets were revealed.

IMPACT OF NEW DEBT OFFERINGS ON EXISTING CORPORATE BONDHOLDERS

AbstractCorporate bondholders may be concerned about the value of their bonds when the firm issues more bonds. Using bond data from the Trade Reporting and Compliance Engine (TRACE) from 2005 to 2017, we study the impact of new bond issues and relative maturity on the price of existing bonds. We find negative and significant average abnormal returns for existing bonds over a three‐day event window. Consistent with the adverse consequences of relative maturity of the new issuance, existing bond market returns are more strongly negative when the newly issued bonds mature before existing bonds. A funded debt covenant attenuates the negative return.

The short-run performance of equity issues in South Africa: Bad timing or a last resort?

Understanding the stock market’s reaction to secondary equity offerings (SEOs) is vital for managers who are commonly tasked with deciding on how to finance their firm’s operations. This study investigated the short-run performance of firms conducting equity issuance on the Johannesburg Stock Exchange (JSE) over the period 1998–2015 by exploring both rational and behavioural models in predicting SEO behaviour. Event-study analysis reveals that the market generally reacts negatively to the announcement of SEOs with a statistically significant average two-day cumulative abnormal return of -2.6%. We also found that the probability of a firm conducting a SEO is significantly negatively related to the number of years listed and the future share return. Although it would make sense that more corporate activity takes place during periods of high investor sentiment, there is no significant evidence that firms conducting SEOs are attempting to time the market.

Market reactions to dividends announcements and payouts. Empirical evidence from the Warsaw Stock Exchange

The main goal of this paper is the empirical examination of the Polish stock market reactions to dividend announcements and dividend payouts made by the companies listed on the Warsaw Stock Exchange (WSE). The research sample comprises 56 companies (WIG index constituents) that announced dividend payments and completed the payout during 2013. In the analysis, event study methodology is employed including either calculating abnormal returns and cumulative abnormal returns around the event day or testing their statistical significance using parametric and nonparametric tests. The average cross-sectional abnormal return calculated for the entire sample is found to be significant on the dividend announcement day (t = 0, 0.86%) and on one day after (t = 1, 0.59%) at the 1% and 10% significance levels, respectively. The outcomes of the analysis conducted within the three distinguished subsamples are rather more diverse. In the subgroup of the first announced dividends (or dividends announced after a minimum one-year break), the significant average abnormal return is found on day t = 1 (0.90%, 5% significance level), whereas in the case of the dividend decreases subsample, the significant average abnormal returns (at the 10% significance level) occur on days t = −4 (-1.44%) and t = 2 (-1.15%). The average abnormal return calculated within the subsample of dividend increases turns out to be positive and significant on day t = 1 (1.03%, 10% significance level). The results obtained for the average cumulative abnormal returns corroborate the findings reached for the average cross-sectional abnormal returns in the case of the first dividend and dividend increase subsamples. However, the average cross-sectional abnormal returns calculated within the eleven-day-long event window around the dividend payment day turn out to be statistically insignificant. The obtained results provide evidence that the Polish stock market reaction to dividend announcements is positive and immediate. However, the market does not significantly react to dividend payouts, which may lead to the conclusion that the WSE directly incorporates news on dividends into stock prices. Moreover, the reaction of the market for dividend announcements is consistent with the sign of the dividend change: dividend-increase (-decrease) announcements are interpreted as a positive (negative) signal by the investors. Such results support both the informational content of the dividend hypothesis and the dividend signaling hypothesis. Considering that the observed abnormal market behavior disappears within two days at most after the announcement date, the results of the study can be useful for financial practitioners only with regard to short-term investment decisions.

Signaling Power of Corporate Name Change: A Case of Indian Firms

In India, every year a large number of firms change their name. This raises a question that does name change convey any signal of better future prospects. The paper examines market response to name change announcements for firms listed on Bombay Stock Exchange. The paper also examines the predictive ability of firm-specific characteristics in determining the nature of market response to the name change announcement. The finding reveals positive and significant average abnormal returns around event date. An increase in cumulative average abnormal return few days before the announcement date has also been observed. Such a market reaction before the event day may be attributed to the leakage of information. The paper analyzes firm-level attributes of successful name changers. The results show that market risk and historical profitability are significant predictors of sign of abnormal return on day of the event. Positive relation of firm profitability with high abnormal return on the day of announcement indicates that in India a firm cannot break with past, by means of a name change. The announcement of new name change does not have positive signaling effect. Hence, the managers of loss-making firms should avoid consuming resources for signaling through business name change.

The Impact of a Rating Agency's Private Information and Disclosed Causes of Rating Downgrades on Insurer Stock Returns

Existing studies document that bond and insurer rating downgrades are associated with negative abnormal returns but generally do not consider the reasons for the downgrade disclosed or implied in the downgrade announcement. Using hand-collected press releases (downgrade announcements) of A.M. Best Company (Best) for a sample of publicly traded insurance firms during the period 1996–2012, we classify and analyze downgrades based on the disclosed causes of the downgrades and whether the rating agency has implied reliance upon unfavorable private information or opinion. We find that during the three-day event window (−1, +1), rating downgrades overall generate a statistically significant cumulative average abnormal return (CAAR) of negative 7.76%. A significantly more negative CAAR of negative 11.46% is found for “financial-prospects-deterioration” downgrades with the perceived presence of Best's private information or opinion. For downgrades without any indication of Best's private information or opinion, the CAAR is negative 3.35%, which is significantly different from zero but significantly less negative than the CAAR of downgrades where private information or opinion is indicated. Downgrades with reported causes other than deterioration of a firm's fundamental financial performance or condition, such as increases in financial leverage and increased business risk taking, produced statistically significant CAAR of negative 3.19% during the (−1, +1) three-day event window, which is also significantly less negative than the CAAR of downgrades where private information or opinion is indicated. Our results provide evidence that downgrades where private information or opinion is likely and downgrades due to a decline in fundamental financial profiles contain more value-relevant information than other types of downgrades.

Impact of Demonetization on Indian Stock Market-An Empirical Study

In order to examine the Indian stock market reaction to demonetization with a sample of 51 stocks using the standard event study methodology, the hypothesis that abnormal returns on and around demonetization are equal to zero has been tested. The empirical results infer that the significant average abnormal returns and cumulative average abnormal returns around the demonetization date rejects the null hypothesis. The study further indicates that demonetization has affected the abnormal returns on stocks traded on the NSE. It is concluded that demonetization has had positive impact on the stocks of the financial services sector, the information technology sector and the energy sector while negative impacts on the stocks of the automobile sector and the consumer goods sector

Market response to internationalization strategies: Evidence from Indian cross-border acquisitions

The paper provides evidence that shareholders of acquirer Indian corporations engaging in cross-border transactions experience a statistically significant positive average abnormal return on the announcement day as well as cumulative average abnormal returns over multi-day event windows. The gains are significantly positive and higher for the acquisitions of targets in developed markets. The regression analysis in the paper highlights that cross-border acquisitions of high tech sector target firms in developed markets generate better wealth. Further, relatively larger acquisitions create higher gains.

Market response to internationalization strategies: Evidence from Indian cross-border acquisitions

The paper provides evidence that shareholders of acquirer Indian corporations engaging in cross-border transactions experience a statistically significant positive average abnormal return on the announcement day as well as cumulative average abnormal returns over multi-day event windows. The gains are significantly positive and higher for the acquisitions of targets in developed markets. The regression analysis in the paper highlights that cross-border acquisitions of high tech sector target firms in developed markets generate better wealth. Further, relatively larger acquisitions create higher gains.

A Study on Impact of Grading on IPOs Performance in Shortterm and Long-term: With Reference to Indian Stock Market

We analyse 146 Indian IPOs (initial public offerings) that are introduced through a book building method from January 2007 to December 2008. We have considered all companies, which are available for trading in BSE (Bombay Stock Exchange) for three year. The evidence suggests that the Indian IPOs market is very slow after financial crisis period and more than 60% of the listed companies are trading below the listed prices. From the analysis of the data, it is identified than the Indian IPOs are underpriced in initial day of listing and underperforming in long-run. The average winning bidders earn a significant average abnormal return of 4.25% in the initial day of listing and loose more than 25% of their investment during the 3 year of share holding period. Finally, there is strong evidence that, the grading of an IPO has a significant impact on IPOs after market performance. The highest graded IPOs are underpriced in initial day of listing and highly over performed after 36 month of listing.

A Sectorial Analysis of Possible Information leakages prior to Merger and Acquisition Deals in Istanbul Stock Exchange

This study aims to track insider trading activities prior to announcement of merger and acquisition deals in Istanbul Stock Exchange. 35 companies and 50 deals are examined for the period 2002 -2013 and significant average abnormal returns one months to twelve months prior to the dissemination of the related information are detected, indicating private information becoming public in some way. Abnormal price changes in M&A deals in Turkey may call for closer monitoring, stricter legislations and more cautious investors in the market. Significant returns are detected but no evidence regarding with sectorial differences are found in terms of information leakage.

Value Creation When Acquiring Public vs Private Firms. Spanish Evidence

We investigate shareholder value creation of Spanish listed firms in response to announcements of acquisitions of unlisted companies and compare this experience to the purchase of listed firms over the period 1991–2011. Similar to foreign markets, acquirers of listed targets earn insignificant average abnormal returns. However, acquirers of listed targets that perform a first bid show significant negative abnormal returns. Acquirers of unlisted targets gain significant positive average abnormal returns. When we relate these results to company and transaction characteristics our evidence suggests that the listing status effect is mainly associated with the fact that unlisted firms tend to be smaller- and lesser-known firms, and thus suffer from a lack of competition in the market for corporate control. Consequently, the payment of lower premiums and the possibility of diversifying shareholders’ portfolios lead to unlisted firm acquisitions being viewed as value-orientated transactions.

The ex-date effect of rights issues: evidence from the Italian stock market

We investigate the effects on stock prices around the Ex-rights Dates (EDs) of rights offerings by firms listed on the Italian Stock Exchange. We focus on the period from January 2007 to April 2011, whereby several operations have been highly dilutive. Highly dilutive rights offerings show high subscription price discount of the new equities issued with respect to the prevailing stock market price. The anomalous behaviour of the prices attracted the attention of the Italian Authority for the Financial Markets (CONSOB). Our results demonstrate a significant average abnormal return of 5.85% on the ex-rights date, which is mostly driven by highly dilutive operations. In particular, we try to explain abnormal returns considering several variables related to the issue and to the issuer. We also control for differences across sectors. We find that the price-adjustment coefficient K explains most of the abnormal returns. We highlight that the stock price adjustment at the ED is so relevant in the case of highly ...