Significant Positive Abnormal Returns Research Articles

Do stock splits matter for returns, volatility, and liquidity?

The purpose of this study is to investigate the impact of stock splits on the return, riskiness, and liquidity of stocks. Utilizing a sample of 94 stock splits taken place between 2010 and 2019 at Borsa Istanbul, the study analyzes the daily abnormal returns, change in volatility, and changes in volume around the stock split announcement and execution dates. The results display significant positive abnormal returns around the announcement date but not significant abnormal returns around the execution. The volatility and liquidity of stocks increase significantly around both announcement and execution dates. The findings are in line with the positive signaling, and liquidity hypotheses of stock split and with most of the observations reported in the empirical literature. The new evidence provided points out the lack of semi-strong form of market efficiency at Borsa Istanbul as far as the stock splits are considered.

Testing Russian Stock Market Efficiency Using Event Studies: Impact of Credit Ratings Changes

Event study is a widespread technique for testing the semi-strong form of the market efficiency hypothesis. Among traditionally studied events, changes in corporate credit ratings by rating agencies have a special importance, since rating agencies use both publicly available and insider information. Studies of developed and emerging markets point to different reactions of stock prices to rating upgrades and downgrades and identify several factors affecting the scale of this effect, including the size and liquidity of the stock market, the level of regulation of the industry, the market capitalization of the company, the status of the rating agency, and others.
 
 On the Russian market, the impact of credit rating upgrades and downgrades on stock prices has not been investigated so far. Ongoing studies of other events affecting stock prices show that the market’s reactions are pretty much in line with those of developed markets, despite its immaturity, limited transparency, high volatility, narrowness and low liquidity, as well as the small number of significant events.
 
 In this article, we evaluate the level of efficiency of the Russian stock market and analyse the reaction of stock prices to changes in issuer credit ratings by international rating agencies using the traditional event study methodology in a narrow event window of 31 days over the period 2016–2020 on a sample of 49 public companies. We show that credit rating upgrades do not lead to statistically significant positive abnormal returns. Visual analysis demonstrates that rating downgrades result in substantial negative abnormal returns. This effect varies for financial and non-financial companies and companies with low and high capitalization yet differs from the effects observed for developed markets; nevertheless, these abnormal returns are not statistically significant. Still, there are grounds to conclude that the Russian stock market
 is not efficient in the semi-strong form and is closer in its characteristics to emerging markets, which is important information for investors, as it permits them to develop profitable trading strategies.

Do Investors React to Terrorism and Peace in Colombia?

ABSTRACT This paper studies the impact of terrorist attacks on the returns and volatility of Colombian stock returns using an event study methodology in a GARCH model framework. It also investigates the impact of the 2016 peace accord between the Colombian government and the FARC, an army of leftist narco-guerrillas, on the same characteristics of the financial market. Results show that the COLCAP index, a market-capitalization weighted index that includes the 25 most liquid stocks listed in the Colombia’s stock exchange, has a significant negative abnormal return of 0.1% 1 day after a bombing attack occurs, that continues to accumulate down to −0.18% 3 days after. Furthermore, events associated with the peace accord, exhibit a significant positive abnormal return of 0.58% on the event date that continues to accumulate up to 1.02% the day after. In addition, cumulative abnormal volatility (CAV) is statistically insignificant both after terrorist attacks and peace-associated events.

Which industries benefited from Trump environmental policy news? Evidence from industrial stock market reactions

We investigate whether election of Donald Trump as the president of the United States of America (the US) and subsequent changes in environmental policies and regulations affected any of the 49 different industry sectors in the US. We analyze 19 different events during Trump’s tenure that were mainly rollbacks of previously created regulations and policies. To analyze stock market effects, an event study methodology is used to assess industry reactions. We assume that Trump loosened environmental regulations and policies to strengthen the US economy. Results show that the lax enforcement of environmental regulations and policies was not effective. Only the coal industry can be considered a beneficiary because it experienced repetitive significant positive abnormal returns, whereas other industries experienced mixed or negative reactions or discontinuous positive reactions. Our results contribute to the extant literature on the US environmental policy within the scope of industry.

What does corporate social advocacy signal? Evidence from boycott participation decisions

PurposeThis paper explores how a firm's public stand on a social-political issue can be a salient signal of the firm's values, identity and reputation. In particular, it investigates how boycott participation–conceptualized as a cue of a corporation's stand on important social-political issues–may affect the stock market valuation of that corporation, as well as how corporations legitimise their stand on the issues.Design/methodology/approachThe authors employ a mixed-methods design that uses both qualitative techniques (content analysis) and quantitative methods (event study methodology) to examine a sample of US firms who participated in a boycott campaign that sought to call attention to issues of hate speech, misinformation and discriminatory content on social media platform Facebook.FindingsFindings from the qualitative content analysis of company statements show that firms legitimise their stand on, and participation in, the boycott by expressing altruistic values and suggesting to stakeholders that their stand aligns not only with organizational values/convictions but also with the greater social good. Importantly, the event study results show that firms who publicly announced their intention to participate in the boycott, on average, earn a statistically significant positive abnormal stock return of 2.68% in the four days immediately after their announcements.Research limitations/implicationsFindings relate to a specific case of a boycott campaign. Also, the sample size is limited and restricted to US stocks. The signalling value of corporate social advocacy actions may vary across countries due to institutional and cultural differences. Market reaction may also be different for issues that are more charged than the ones examined in this study. Therefore, future research might investigate other markets, use larger sample sizes and consider a broader range of social-political issues.Practical implicationsThe presence of significant stock price changes for firms that publicly announced their decision to side with activists on the issue of hate propaganda and misinformation offers potentially valuable insights on the timing of trades for investors and arbitrageurs. Insights from the study also provide a practical resource that can be used to inform organizations' decision-making about such issues.Social implicationsTaking the lead to push on social-political issues, such as hate propaganda, discrimination, among others, and communicating their stands in a way that speaks to their values and identity, could be rewarding for companies.Originality/valueThis study provides novel evidence on the impact that corporate stances on important social-political issues can have on stock market valuation of firms and therefore extends the existing related research which until now has focused on the impact on consumer purchasing intent and brand loyalty.

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

AbstractThis study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

What If Dividends Were Tax-Exempt? Evidence from a Natural Experiment

Abstract We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. We exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends. We show that treated firms increase their dividend payout by around 30$\%$ after the tax cut. The effect on payout is less pronounced for firms prone to agency conflicts. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment.

Earnings Disaggregation and Market Efficiency

Using the earnings disaggregation model in Jackson, Plumlee and Rountree (2018), we investigate investors’ incorporation of the market, industry and firm-idiosyncratic components of earnings in their stock pricing decisions. We find results consistent with Jackson et al. (2018), showing the firm-idiosyncratic component of earnings is less persistent than the other two earnings components. However, we find that investors fail to correctly react to the actual persistence of the market and firm-idiosyncratic components of earnings as reflected in their stock pricing behavior. Investors are found to underweight the market and firm-idiosyncratic components of earnings but do not incorrectly weight the industry component of earnings. Correspondingly, we find that significant positive abnormal returns can be earned by taking a long (short) position in firms with higher (lower) levels of firm-idiosyncratic earnings consistent with the firm-idiosyncratic earnings component containing higher information uncertainty.

The performance of bidding companies in merger and acquisition deals: An empirical study of domestic acquisitions in Hong Kong and Mainland China

Several interdisciplinary studies based on 2007–2008 global financial crisis to measure the causes of crisis, for e.g. firm value, stock market efficiency, corporate governance and macroeconomic performance, and relate all sources of crisis to prior studies. This paper examined the post financial crisis impact the short-term market responses of Hong Kong domestic acquisitions by separating target companies into two samples: Hong Kong targets and Mainland China targets from period of 2012–2016. We have used asset pricing models to estimate the market reaction to the acquisition announcement. We have also analysed the impact of several bid and firm characteristics on bidders’ short-term operating performances. Our findings suggest that: (i) acquisition events in both target markets, bidders earn significant positive abnormal returns but market responses of Mainland China target acquirers are much better. There is an inverse relationship between bidders’ post-acquisition abnormal returns and the level of competition in their targets’ market; (ii) companies bidding for Hong Kong targets obtain higher abnormal returns with cash-financing acquisitions, large relative size targets, single acquisitions, related acquisitions, small market value, more free cash flows, low leverage and high profitability; (iii) firms acquiring Mainland China targets benefit more from stock payment takeover events, large relative size target, multiple acquisitions, related acquisitions, large market value, less free cash flows, high leverage and high profitability.

Value Implications of REITing and De-REITing

We explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non-REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de-REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabilities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.

Stock Market Reaction to Indonesia Presidential and Legislative Election

The research investigated the reaction to Jakarta Islamic Index (JII) stocks around the Indonesia Presidential and Legislative Election in 2019. It was the first time that the election of the president and legislative assembly was held on the same day in Indonesia. The sample used was 30 stocks of JII. The event study methodology was conducted on this issue. The results show a significant positive abnormal return on the tenth day before the event and the seventh day after the event. From the liquidity, it is found that this event has a strong effect on Trading Volume Activity (TVA) of JII stocks surrounding the event. Additionally, another liquidity proxy, namely bid-ask spread, has the same result by experiencing a significant positive difference before and after the event. These results indicate that the information on the event is sufficient to influence the price, TVA, and size of the bid-ask spread of JII stock.

Investor Sentiment and Cross-Sectional Return after Share Issuance: Evidence from Seasonal Equity Offering in China Market

Our research on private placement of equity on China capital market reveals that firms prefer to equity financing when their stock price is overvalued and investor sentiment is high, following the market timing hypothesis. However, after private issuance, we document a significant positive abnormal return within three years. We believe firms choose to polish their financial statement before the exit of institutional investors and controlling shareholders. Through manipulation of discretional accruals, firms improve the profitability and market valuation, and help institutional investors and controlling shareholders obtain the abnormal return after private placement of equity. Nevertheless, such manipulation cannot be sustained and will do harm to other investors in the long-term.

DO PRE & POST MERGER INTEGRATION MATTERS IN CROSS BORDER MERGER & ACQUISITION (CBM&A)

This study aims to assess the impact of deal size, value and firm-specific factors on the performance of UK acquiring firms from 2006 to 2016 in short-run. The event window methodology was used to analyze short run effects and standard market model was used to calculate abnormal and expected returns. Short event window was made from one day before the announcement of CBM&A to the one day after the announcement date of the event and from five days before the announcement date to the five days after the date of the announcement of the deal and similarly from ten days before the event was announced for ten days after the event was announced (-1, 1), (-5, 5) and (-10, 10) respectively. The study infers that the UK acquirers do not earn statistically significant positive abnormal returns in the short run. The uni variate analysis shows that the short-run performance of UK acquirers is influenced by acquisition strategy, and the payment methods. After the fifth merger wave, international deals in merger and acquisition along with cross border deals started, which created the value for the economy as well. Since 1985, several deals have been done in the United States and the United Kingdom. This research paper is intended to provide empirical evidence on recent data of CBM&A transactions of the UK acquiring firms. The present study is a indispensable for the firms seeking cross border deals and fills the gap in the existing literature.

Do executive compensation contracts maximize firm value? Indications from a quasi-natural experiment

Abstract We find significant positive abnormal returns surrounding a surprising and quick enactment of a law that restricts executive pay to a binding upper limit in a few industries. We find that the effect is concentrated only for firms in which the restriction is binding. We also find that the increase in value is greater for firms with weaker corporate governance and smaller for firms that grant a greater portion of equity-based compensation to their executives. These results provide indications that, on average, compensation contracts can be set in a way that does not maximize firm value.

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

Managing the media coverage: evidence from managers’ stock selling

ABSTRACT This paper investigates whether the insiders strategically manage the disclosure and timing of media coverage to maximize their trading profits. Using a sample of Chinese A-listed firms during the period of 2008–2017, we find that when top managers intend to sell their shares, they would increase the media coverage in the early stage to pull up the stock price based on the self-interest motivation. That’s to say, the media attention on the focused firms represents a significant increase during the selling period and decreases largely after the selling is completed. In addition, the association is mitigated in SOEs and firms belonging to more competitive industries. We also find that there are significant positive cumulative abnormal returns during the selling period while negative ones after the event. Our findings suggest that managers could intentionally manage the media during important corporate events for their own benefits at the cost of minority shareholders.

STOCK PRICE BEHAVIOR AROUND CUM-DIVIDEND DATE OF INDONESIA BLUE CHIPS STOCKS

This study tests whether there are significant stock prices changes around the cum-dividend date. In particular, it examines the stock price movement of two days before and two days after the cum-dividend date. It uses an event study methodology. The population of this study are all companies in the LQ45 listed at Indonesia stock exchange for the year 2017 and the sample consists of 38 companies. Abnormal return is measured using the single index model. Results show that there are no significant abnormal returns around the cum-dividend date. In addition, there is no significant abnormal return difference between two days before and two days after the cum-dividend date. The implication of the reported findings is that investors may not obtain significant positive abnormal returns using a cum-dividend date as the trading strategy.

The Effect Analysis of Banking Corporate Bond Issuance Towards the Stock Market Reaction

The market capitalization of finance sector stock was dominated by the stock of the banking subsector up to 91,87%. The tendency of Indonesian companies to issued corporate bonds is also high. The banking subsector has dominated 38,52 % of the corporate bond market in Indonesia. This research aimed to analyze the development of the stock and corporate bond markets in the banking subsector of Indonesia from 2013 to 2017, analyzing the effects of the corporate bond issuance events towards the prices and the abnormal stock returns, as well as the analysis of the internal and external factors towards the prices of the stock in banks listed in the IDX from 2013 to 2017. This research showed that the stock and bond markets in the banking subsector of Indonesia had experienced growth from 2013 to 2017. Based on the results of partial regression, the announcement of issuance of corporate bonds, dividends per share, NIM and the exchange rate of rupiah to USD had a significant influence on stock prices and the form of influence was positive. NPL, DER, CAR, BI Rate and inflations had significant effects on prices stocks and the forms of influence were negative. Furthermore, the results of paired sample t-test indicated a significant negative abnormal return on H-1 and a significant positive abnormal return on H = 0 announcement of the bond issuance. Keywords : Corporate bonds, stock price, abnormal stock return, event study, internal factor, external factor DOI : 10.7176/RJFA/10-14-10 Publication date :July 31 st 2019

Impact of the Changes in the Nifty Index Constituents

The objective of this study is to conduct an empirical examination of the S&P CNX Nifty index reconstitutions, between 2009 and 2018, focusing on both the price and non-price effects and the explanations surrounding them. The event methodology, with multiple abnormal return computational methods, is employed to improve the robustness and reliability of the results. The results show that the Nifty index additions (deletions) are associated with significant positive (negative) permanent abnormal returns. But the evidence of permanent abnormal volume is limited, unlike the developed markets. The evidence in this study favours the downward sloping demand curve hypothesis as the dominant explanation for the permanent abnormal return. This study extends the existing literature to a hitherto unexplored new sample period.

Return predictability: The dual signaling hypothesis of stock splits

AbstractThis paper aims to differentiate between optimistic splits and overoptimistic/opportunistic splits. Although markets do not distinguish between these two groups at the split announcement time, optimistic (overoptimistic/opportunistic) splits precede positive (negative) long‐term buy‐and‐hold abnormal returns. Using the calendar month portfolio approach, we show that the zero‐investment, ex ante identifiable, and fully implementable trading strategy proposed in this paper can generate economically and statistically significant positive abnormal returns. Our findings indicate that pre‐split earnings management and how it relates to managers’ incentives, is an omitted variable in the studies of post‐split long‐term abnormal returns.