Significant Positive Market Reaction Research Articles

The market and operating performance of Chinese seasoned equity offerings

This article examines the short-term market and the long-term operating performance of Chinese seasoned equity issues (Seasoned Equity Offerings (SEOs)). Employing data for 596 rights offerings and 181 private placements for the period 1998 to 2004, we find significant positive short-term market reaction for both rights offerings and private placements; however, the long-term operating performance of the firms offering private placements is significantly better than the rights offering firms. In China, firms issuing rights offerings are required to adhere to strict rules set by the Chinese Securities Regulatory Commission (CSRC). These firms must meet minimum standards with respect to earnings and profitability before being permitted to issue rights offerings. Firms issuing private placements are not required to meet the same strict earnings/profitability requirements. Our results suggest that the regulatory oversight is important for the short-term market reaction of the equity issuing firms. However, it...

Stock Market Reaction to Elimination of the Reconciliation from IFRS to U.S. GAAP in the USA

Stock Market Reaction to Elimination of the Reconciliation from IFRS to U.S. GAAP in the USA

An empirical investigation of environmental performance and the market value of the firm

This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 417 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 363 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third-parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emission reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.

Determinants of Dividend Policy in Chinese Firms: Cash Versus Stock Dividends

The Chinese market is characterized by state-controlled and closely held firms as well as significant differences in economic development and legal structures at the provincial level and corporate regulations that require firms seeking external financing to show a history of dividend payment. Using a sample of listed Chinese firms, we investigate the likelihood of paying dividends, different forms of dividends and market reactions to various dividend announcements. We find that profitable, low leverage, high cash holding, stronger shareholder protection firms, and those firms with state ownership prior to listing and undertaking subsequent equity offerings are more likely to pay dividends and cash dividends, in particular. Firms appear to cater to investor demands in setting dividend policy; hence firms with a large proportion of non-tradable shares are more likely to pay cash dividends. Consistent with the use of stock dividends to attract the attention of analysts, we also find that growing firms with high levels of retained earnings and greater investment in fixed assets pay stock dividends and these firms’ dividend announcements are associated with significant positive market reactions and increased analyst following.

A Test of the Substitution between Debt and Leases Using Sale-and-Leaseback Transactions

Theoretically and empirically, debt and leases have been shown to be both substitutes and complements. To explore the relation, we divide our sample into two subsets: those that exhibit a complementary relation (43% increase debt after increasing leases), and those that exhibit a substitutionary relation (57% decrease debt after increasing leases). For complement firms, we find a significant negative relation between leasing and the firm’s size, marginal tax rate, and z-score, consistent with “complementary” theories. For substitute firms, we find a positive and significant relation between leasing, the marginal tax rate and changes in cash. We also find a significant positive stock market reaction to the announcement of the SLB, which is stronger for the complement subset of firms.

An Empirical Investigation of Environmental Performance and the Market Value of the Firm

This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 430 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 381 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emissions reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, we find that the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.

Shareholder rights and the market reaction to Sarbanes-Oxley

The Sarbanes-Oxley Act of 2002 (SOX) was aimed at enhancing corporate governance, financial reporting, and audit functions. This study compares the market reaction of firms with weak and strong protection of shareholder rights to the passage of SOX. We find that firms with weak shareholder rights experienced positive abnormal returns when SOX was passed. This is consistent with the market perceiving that such firms would benefit from the governance reforms. In contrast, firms with strong shareholder rights did not experience a significant positive market reaction. We also find a significant increase in risk for firms with weak shareholder rights following the passage of SOX. In addition, we find that strong shareholder rights firms decreased shareholder protection after SOX, while weak shareholder rights firms did not change significantly from their pre-SOX protection levels. We find no evidence of abnormal long-run performance for firms that altered their shareholder protection following SOX.

Stock Market Reaction and Stock Option Plans: Evidence from Germany

Stock option plans are probably one of the most controversially discussed compensation elements of the past few years. I look at stock option plans issued by German companies between 1996 and 2002. In addition to a descriptive analysis of 44 launched plans, I perform an event study covering 17 announcements of stock option plan adoptions during this period. The findings show significant positive stock market reactions of around 1% on the day of announcement in the press. Thus, stock option plans appear to be an instrument whose effect outweighs its cost of increasing shareholder value. Significant positive abnormal returns in the weeks preceding the announcements indicate that the timing of stock options coincides with positive market developments just before the adoption of the stock option plans is announced.

Open market share repurchases in the UK: evidence on the agency theory of free cash flow

This paper examines the signalling theory and the agency theory of free cash flow in the context of open market share repurchases by considering the growth characteristics of the company making the announcement. These two theories are the most extensively discussed with regard to the well-documented positive market reaction associated with share repurchases. After confirming a significant positive market reaction on the announcement for our sample our findings show a significant negative relation between high growth companies and the abnormal returns on announcement, which is robust to several definitions of growth. We conclude that the positive market reaction associated with open market share repurchases in the UK is best explained by the agency theory of free cash flow.

The Seasoned‐Equity Issues of UK Firms: Market Reaction and Issuance Method Choice

Abstract: This study examines the seasoned equity issues of companies traded on the London Stock Exchange. Recent regulatory changes have allowed UK firms more discretion in choice of issue approach, and this has led many firms to issue through placing in preference to a rights issue. Having first documented the trend towards increasing use of placings, we go on to identify an interesting subset of placings that are less likely to be anticipated by the market, and find a significant positive market reaction to such placings, which contrasts with the significant negative reaction we find for issues by rights. We also examine the choice of seasoned equity issuance method, focusing on the choice between placings versus rights issues. We develop a model to explain the choice of equity issue method that achieves a high level of predictive accuracy.

Do Acquisitions Drive Performance or Does Performance Drive Acquisitions?

We examine the characteristics, strategies, and performance of acquirers in 12,476 completed US acquisitions. We document that a portfolio of acquiring firms significantly outperformed market benchmarks during the 1990s, and that frequent acquirers outperformed infrequent acquirers. This outperformance reflects superior stock price performance that occurs before, not after, acquisition announcements, implying that it is good performance that begets acquisitions rather than the reverse. In addition to this pre-acquisition stock price run-up, in the vast majority of cases, we observe a statistically and economically significant positive market reaction to the acquisition announcement itself. Further, we find that acquirer size is not the most important determinant of the market reaction to an acquisition announcement. Instead, the target organizational form – i.e., whether the target is public or non-public – dominates all else. In addition, the size of the target and the medium of exchange are at least as important as acquirer size. Our empirical results lead us to conclude that the widely accepted attributions of “hubris” and “agency costs” to the motivations of the managers of acquiring firms are perhaps overstated, since they apply only to a small subset of cases where the target is relatively large and publicly traded, and stock is used as the sole medium of exchange. A substantial portion of M&A activity is consistent with shareholder value-maximizing behavior.

Market Returns to Acquirers of Substantial Assets

Does poor post-acquisition performance characterise firms that make non-M&A acquisitions? We investigate the wealth effects of substantial asset acquisitions (i.e. acquisitions that cost over $10 million) on acquiring firms' shareholders. We find significant abnormal positive market reaction to asset acquisition announcements and contrary to findings for firms undertaking M&As, the acquiring firms perform exceptionally well post-acquisition. Our findings are robust to the research method weaknesses common to many studies of long-term performance and we control for free-cash-flow as well. Our results contradict the hubris hypothesis of acquisitions and lend weight to the argument that the auction-style process that characterizes corporate takeover bids contributes to overpayment.

Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by Non-taxable Firms

Market reaction to the announcement of obtaining loan commitments (LCs) is examined for a unique sample of tax-exempt real estate investment trusts (REITs). Debt-interest tax incentives may be ruled out on a theoretical basis and empirically due to a significant positive market reaction. Thus, evidence is developed to differentiate between two signaling-effect explanations. The analysis supports the hypothesis that management procures LCs to undertake new real estate investments. This action is interpreted by the market as a signal of management's superior information regarding the REIT's true equity value.

The Economic Consequences of Firms' Voluntary Submission to Greater External Scrutiny

There is a significant positive market reaction to merger announcements by acquiring firms that use lower quality external auditors. One explanation for the positive performance of these firms is that their cost-of-capital is reduced as a result of their voluntary submission to the intense scrutiny inherent in the merger process. For the lower quality audit firms, I find that the cost-of-capital effect dominates the over-valuation signaling effect of a stock-for-stock merger previously documented in the literature. I also find that a cash bid conveys to the market a stronger positive signal for low quality audit clients as opposed to high quality audit clients. Because the choice of a high quality auditor is already associated with favorable private information, clients of high quality audit firms tend to benefit less from the announcement of a cash acquisition. The results are robust to controlling for the usual determinants of acquirers' abnormal returns, both acquirers and targets' sizes, and potential sample selection biases.

WITHDRAWN SPIN‐OFFS: AN EMPIRICAL ANALYSIS

AbstractWe examine market reaction to corporate spin‐offs that are eventually withdrawn. These spin‐offs do not experience the significant positive share price response reported for spin‐offs generally. The overall market reaction to both the initial spin‐off announcement and the withdrawal announcement is not significant. When a reason is provided for withdrawing a spin‐off, there is a significant positive market reaction; otherwise, there is a significant negative reaction. Firms that withdraw a spin‐off without stating a reason experience significant deterioration in industry‐adjusted operating performance in the three years following the withdrawal. These results indicate the market can anticipate the viability of withdrawn spin‐offs at the time of the initial announcement.JEL classification: G34

ISO Certification and Abnormal Return of Stock Price — The Study of the Taiwan Stock Market

This paper extends ISO certification research by investigating whether a stock value is influenced by the announcement of its ISO registration with respect to the firm size, industry, and ISO standard series on the Taiwan Stock Exchange. The results show that receiving ISO registration influences abnormal returns. The market reacts favorably to both small and large firms but has no reaction to medium firms in terms of a firm's capital. We also observe significant positive market reaction for Plastics and Textiles. A beneficial implication is that investors may benefit more from their investment endeavors if they can properly examine the specific effects.

The Sydney Olympic Games announcement and Australian stock market reaction

On 23 September 1993 the International Olympic Committee announced that Sydney would host the 2000 Olympic Games. Given the keen competition between rival cities bidding for the Olympics it could be argued that the winning city anticipates economic benefits to accrue from hosting the games. To the extent that this is valid, some stock market reaction may be found to the Olympic announcement. Testing the hypothesis for Australia the following results are found. First no overall impact on the stock market is found. Second, only a limited number of industries portfolios show a significant positive impact to the Olympic games announcement. Specifically the industry portfolios are: building materials, developers and contracts, engineering and miscellaneous services. This is consistent with the economic boost for the Olympics being in infrastructure and development and thus in the general building and construction sector. Third the results clearly demonstrate that for the industries where there was a significant positive stock market reaction to the Olympic Games announcement, that significant positive stock market reaction is confined to stocks based in the state which will host the games, New South Wales.

Stock Price Reaction to Dividend Increases in the Hotel and Restaurant Sector

This study assesses the stock price reaction to announcements of dividend increases by firms in the hospitality industry using a standard event study methodology. Results indicate that dividend increases are favorably received by market participants because a statistically significant positive market reaction is observed. Results of a cross-sectional analysis show that the size of the market reaction across firms is positively related to the magnitude of the dividend increase. These results imply that managers ought to carefully consider the ramifications of a change in dividend policy because such changes appear to be perceived as signals of the firm’s future financial condition.