Spanish Stock Exchange Research Articles

Trading system upgrades and short-sale bans: Uncoupling the effects of technology and regulation

Abstract We examine the market quality effects of technology upgrades juxtaposed with short-sale bans. Between 2011 and 2013, the Spanish Stock Exchange introduced a smart trading platform (SIBE-Smart) and colocation to facilitate high-speed trading, and they also imposed two short-sale bans. We find that the SIBE-Smart introduction, which occurs between the two short-sale bans, leads to reduced market quality. The introduction of colocation, which occurs during the second short-sale ban, improves market liquidity although it does not attract additional high-speed trading. Our results highlight how the effects of latency-reducing infrastructure improvements depend on, and differ across, different regulatory regimes.

Stock Liquidity Around Credit Risk Changes: Evidence from the Spanish Market

This study examines the existing relationship between announcements of debt rating changes for companies listed on the Spanish stock exchange and the liquidity of their stocks for the period of 2000 to 2010. Liquidity around the announcement day is analyzed using different liquidity measures proposed by the equity market literature. The study also examines the factors that determine the intensity of the announcement’s effect on liquidity. The evidence shows that both positive and negative announcements (of improvement and decline in credit rating) lead to an increase in liquidity, which is anticipated by the market in both cases. Regarding the factors that determine intensity, it is observed that investors combine the information included in the announcement with the characteristics of the issuing company. Still, the recent economic and financial crisis, in which the role of the rating agencies has been greatly questioned, has not changed the intensity of these effects on liquidity.

Fragmentation vs. consolidation in Spanish Stock Exchange. A note

After the implementation of MiFID (I and II), competition is a reality in all the European Cash Markets. A natural consequence of competition is that order flow is fragmented in different type of venues. This paper focuses on the consequences of fragmentation on the local market liquidity of the Spanish Stock Exchange (hereafter SSE). Our main result shows that, for our sample, fragmentation is relevant determining the cost of liquidity. Following the analysis of Degryse et al. (2014), the linear component of fragmentation has a positive and significant effect on liquidity (reduces spreads and increases Kyle's Lambda) and the quadratic term has a negative and significant effect on liquidity (increases spreads and reduces Kyle's Lambda). So, fragmentation is good for liquidity but beyond a given level of fragmentation, increasing it is worse for the liquidity of the regulated market.

Managerial change and strategic change: The temporal sequence

AbstractThe relationship between managerial change and strategic change is a complex issue that challenges our understanding of how firms react to their business environment. In this study, we analyse the influence of the management team and more specifically their knowledge and capabilities in the process of strategic change. To do so, we delve deeper into the relationship between managerial change and strategic change by identifying the sequence of these changes. Using qualitative methodology, we analyse 10 companies listed on the Spanish Stock Exchange over an extensive period to formulate our propositions. Our analysis shows that managerial change precedes strategic change. Top management team reorganization, even without Chief Executive Officer succession, was a sufficient condition for strategic change to take place. Moreover, we identified key modifications that took place whenever strategic change occurred. Our results provide meaningful insights into the processes of strategic change within firms that broaden our theoretical knowledge in this area.

Monitoring by busy and overlap directors: an examination of executive remuneration and financial reporting quality

ABSTRACTWe examine the influence of multiple board directorships and boards’ committee memberships on three board supervisory outcomes: executive remuneration, external auditor opinion, and earnings management. The study uses a panel of 122 non-financial companies listed on the Spanish Stock Exchange over the period 2004–2011. Our results show that firms with busy directors offer low executive remuneration and present a low probability of a qualified audit opinion. Furthermore, the results indicate that firms with overlap directors exhibit a higher probability of receiving a qualified audit opinion. Additionally, we find evidence that the overcommitment effects of busy and overlap directors are more evident for large firms. Overall, our findings suggest that busy (overlap) directors are beneficial (detrimental) to the monitoring capability of the board in the Spanish context.

Linking an unlearning context with firm performance through human capital

The purpose of this paper is to examine the relationship among organisational unlearning, human capital and firm performance. In doing so, this paper comprehensively reviewed the literature on the unlearning concept, and developed and validated a model to measure unlearning in 112 companies listed on the Spanish Stock Exchange. The methodology involved the construction and analysis of a structural model using both subjective and objective criteria in our measurement variables, developed from a relevant literature review. Our findings show that managers need to develop an unlearning context process to create human capital, which is a primordial asset to improve firm performance.

On the relationship between corporate governance and value creation in an economic crisis: Empirical evidence for the Spanish case

This paper analyses the effect of corporate governance on value creation. It relies upon a dataset that includes the companies listed on the Spanish Stock Exchange for the period from 2005 to 2012. Attention is focused on the structure and composition of boards. In particular, four variables are analyzed: BOARD_SIZE, BOARD_INDEPENDENCE, BOARD_DILIGENCE (measured by the number of meetings), and DUALITY (chairman and chief executive officer being the same person). Over the period of the deepest economic crisis (2009–2012) the most significant variables that had a positive effect on value creation were BOARD_INDEPENDENCE and BOARD_SIZE. Hence, the global financial crisis has highlighted the need for effective corporate governance. Policy makers should think about translating the recommendations of the Good Governance Codes into legislation (mandatory), to improve corporate governance.

The effect of taxes on the debt policy of spanish listed companies

This study explores the role of taxes in explaining companies’ financing decisions. We test whether the corporate tax shields explanation of capital structure is applicable to firms listed on the Spanish stock exchange over the period 2007–2013. Taxes are found to be economically and statistically significant determinants of capital structure. Our results suggest that marginal tax rates affect the debt policies of Spanish listed companies, and the existence of non-debt tax shields constitutes an alternative to the use of debt as a tax shelter. Consistent with theoretical expectations, there is a stronger relation between debt and taxation in less levered firms. Finally, we empirically estimate the impact of the new thin-capitalization rule put forth by the Spanish government in 2012 on the financing behaviour of Spanish listed companies. Our empirical evidence supports the existence of a tax reform effect, where companies affected by interest deductibility limitations reduce their leverage more than companies that are not affected.

Cantidad y calidad de información de riesgos divulgada por las empresas españolas: Un análisis en periodos diferentes del ciclo económico

Companies must disclose information on the risks they are exposed to. This duty has brought about a new research line on risk information disclosure. Within this line, this paper analyses the quantity and quality of risk information disclosed by firms in two different periods: One characterized by economic growth (year 2006); and another corresponding to a crisis time (year 2011). We focus our work in Spain, and we take the data from non-financial companies listed at the Spanish Stock Exchange in the years 2006 and 2011. With regard to the quantity of information disclosed by companies, our results show that the degree of risk information disclosure is higher for a crisis period than for a non-crisis time. However, when we check for differences in the quality of the risk information disclosed by firms, we do not detect statistically significant differences between both periods. Furthermore, we observe that the higher quantity of risk information disclosed in the crisis time corresponds to financial risks. We do not encounter differences in the information on non-financial risks disclosed by firms.

Shackled High Speed Traders? Latency Reduction and Short Sale Bans

We examine the market quality effects of technology upgrades juxtaposed with short sale bans. Between 2011 and 2013, the Spanish Stock Exchange launched a smart trading platform (SIBE-Smart), imposed two short sale bans, and introduced colocation to facilitate high speed trading. We find that the SIBE-Smart introduction leads to reduced market quality. Although colocation improves some dimensions of liquidity, it does not attract additional high speed trading. Our results indicate that the effects of the two technology enhancements cannot overcome the negative effects of the short sale bans and overall market quality declines significantly. These results are in contrast to existing studies that attribute enhanced market quality to increased fast trading resulting from technological inducements. We conclude that the beneficial effects of technological upgrades that attract fast trading, improving liquidity and price efficiency, are negated in the presence of regulatory restrictions.

Self-perception of ethical behaviour: The case of listed Spanish companies

Purpose: This article aims to research into the perception that companies have of their ethical behavior. Design/methodology/approach: A questionnaire was conducted in June 2014 among the listed companies that comprise the IBEX35 index of Spanish stock exchanges. For the statistical analysis, contingency tables (double entry) were drawn up as well and several statistical tests (Cramer’s V, Pearson’s x 2 , Kendall’s correlation coefficient; and Goodman and Kruskal’s Gamma). Findings: The results show the self-perception that listed Spanish companies have of their ethical behaviour, with the observation that, generally, they have a greater perception than the reality of the study actually shows. Research limitations: Main limitations are that the sample size is small, although it includes the largest listed companies in the country. Respondents were essentially the Corporate Social Responsibility managers, so they may not be familiar with some of the subjects on which they were questioned, as we are dealing with large companies where responsibilities may be very compartmentalised. Practical implications: This line of research helps to know more about the self perception of big Spanish listed companies about their ethical behavior. Social implications: The evidence provided by this study helps to know more about aspects than can be improved in connection the ethical behavior in companies. Recent scandals make the topic very relevant from a social point of view. Originality/value: In recent years there has been much talk about the ethics of organisations and studies on the subject are plentiful. However, there has been scarcely any research into the perception that companies themselves have of their ethical behaviour.

Fragmentation vs. Consolidation in Spanish Stock Exchange. A Note

After the implementation of MiFID (I and II), competition is a reality in all the European Cash Markets. A natural consequence of competition is that order flow is fragmented in different type of venues. This paper focuses on the consequences of fragmentation on the local market liquidity of the Spanish Stock Exchange (hereafter SSE). Our main result shows that, for our sample, fragmentation is relevant determining the cost of liquidity. Following the analysis of Degryse, de Jong and van Kervel (2014), the linear component of fragmentation has a positive and significant effect on liquidity (reduces spreads and increases Kyle’s Lambda) and the quadratic term has a negative and significant effect on liquidity (increases spreads and reduces Kyle’s Lambda). So, fragmentation is good for liquidity but beyond a given level of fragmentation, increasing it is worse for the liquidity of the regulated market.

The influence of family control on decisions regarding the specialization and diversification of business groups

This study analyses the impact of family control on decisions regarding the specialization and diversification of large business groups whose parent companies are listed on Spanish stock exchanges. Using a sample of ninety-nine companies, having identified the companies that constitute the business group, and using both binary logistic models and the Heckman two-step method to eliminate selection bias, the results show how the familial nature of the parent company favours specialization and reduces the level of the business group's diversification. In addition, we see that there are differences among family groups with respect to the concentration of their holdings in that a higher level of concentration increases the level of diversification in the family business group.

Negative aspects of counter-knowledge on absorptive capacity and human capital

Purpose – People live and work in a world where they do not have complete knowledge and, as a result, they make use of rumours, beliefs and assumptions about relevant areas of concern. The term counter-knowledge has been used to refer to knowledge created from unverified sources. The purpose of this paper is to examine the relationship between counter-knowledge and human capital (HC) as well as investigating interactions between absorptive capacity (ACAP) and HC. Design/methodology/approach – A model is tested to examine the relationship between counter-knowledge, HC and the financial performance of 112 companies listed on the Spanish Stock Exchange. Findings – The results are calculated using structural equation modelling. This leads to the main conclusion that while the increasing presence of counter-knowledge leads to a reduction of ACAP and, by extension with HC. However, in the context of the sample, HC has positive effects on firms’ performance. Therefore, consideration must be given to the evaluation of the real cost of counter-knowledge or inappropriate assumptions on HC. Practical implications – The key managerial implication of this paper is that management should actively develop an organizational culture which questions the source of any knowledge and favours evidence-based reasoning over reasoning based on “gut instinct”, what has worked in the past and reasoning based on rumours and gossip. Originality/value – This paper provides empirical support for the argument that the all so-called “knowledge” generated from the sharing of unverified news is not necessarily good knowledge. Rumours or gossip shared thanks to unverified sources are some examples that illustrate people possibility to create inappropriate or false beliefs via unsupported explanations and justifications.

E-Recruitment, gender discrimination, and organizational results of listed companies on the Spanish Stock Exchange

The recruitment process aims to request relevant information from applicants, but sometimes this could be used to discriminate. Based mainly on the legal framework and the Rational Bias, the present paper explores the use of potentially discriminatory content against women in Spanish companies according to the enforcement of the equal employment opportunity legislation in 2007, and its relationship with organizational results. We have performed a comparative study between 2005 and 2009 implementing a combination of qualitative and quantitative analysis. All the websites of the Spanish Stock Exchange were analyzed. Results show that companies did include potentially discriminatory questions in application forms, even after the law enforcement, but not in recruitment statements. Regarding organizational results, small but significant relationships between legal fulfillment and annual returns were found, but these results could have been influenced by factors attributable to the economic crisis. To conclude, we provide recommendations regarding desirable policies and organizational practices in the context of the area being studied.

How Spanish options market smiles in summer: an empirical analysis for options on IBEX-35

This paper examines the behaviour of the smile in the Spanish Stock Exchange during 2011 and 2012 summers. In these periods, the value of the main index of the Spanish Stock Exchange market IBEX-35 had fallen down a maximum of 2103.60 points in summer 2011, which made a drop of 20.05% in this period. On the contrary, in summer 2012, it had raised a maximum of 2165.70 points. That means a rise of 26.31%, whereas the Spanish risk premium had raised dramatically. By linear interpolation, implied volatilities for moneyness points needed were calculated. Then, we construct 3288 smile curves and the same quantity of distortion levels. Thousand six hundred and forty-four smiles are for both call and put option contracts, and for all summer 2011 and 2012 maturities (June, July, August and September). Next, we compare all smile curves with 1 of the 17-typical shape patterns for calls, puts, different dates, etc. Afterwards, we take the value of the distortion level calculated before and include the smile in one A–E class of distortion. We can notice that the most popular types are only two, for both calls and puts, Left Smirk (LK) rather than Reversed Right Smirk (RRK); all smiles are formed in the same way, and they are all from ‘D’ class. The changes between LK and RRK occur only on, or one day after, expiring dates, thus are jumps in distortion. Afterwards, we make a comparison with 2013 and 2014 summers' smiles which are not marred by the short-selling ban imposed by the Spanish Securities Exchange Commission in 2011 and 2012.

Spread component costs and stock trading characteristics in the Spanish Stock Exchange. Two flexible fractional response models

This paper investigates relationships between the spread component costs (adverse selection, order processing and inventory costs) and stock trading characteristics in the Spanish Stock Exchange (SSE), taking into account the random nature of these costs. First, we analyse the statistical properties of estimated spread components in the market, which are obtained by using two statistical models to decompose the bid–ask spread. We then propose a fractional response regression model based on two flexible cross-sectional probability density functions with covariates which accommodate certain aspects of the empirical estimates, such as skewness and bounded distribution. Our model has two main advantages: (i) it can be implemented easily in a maximum likelihood framework; (ii) in contrast to linear regression models, it provides a useful estimate of the statistical significance of the parameters, and predicts costs not only at the conditional mean but also by using quantiles of the estimated conditional distribution. The empirical results corroborate the presence of statistically significant large order processing costs and smaller adverse selection and inventory costs in the SSE. These spread components have a skewed empirical distribution and the proposed fractional regression models represent the behaviour of these costs reasonably well, surpassing the linear regression model in various specification tests.

Politically connected firms in Spain

The goal of this study is to analyze the incidence of dominant owners in the probability of the presence of political directors and the effect of said presence on firm value. The study uses a sample of non-financial Spanish companies listed on the Spanish Stock Exchange over the period 2003–2012. The results show that around half of the firms have at least one ex-politician on their board of directors. Furthermore, the results indicate that dominant shareholders’ voting rights and family nature have a negative effect on the likelihood of having ex-politicians on the board of directors. Moreover, the results show that the presence of political connections positively affects firm value. Further analyses show that this relationship is dependent upon the nature of the dominant owner, the use of pyramidal structures, the tenure of board members and the political directors’ ownership stake.

Corporate Governance And Accuracy Level Of Financial Distress Prediction Models

This investigation verifies the impact of corporate governance measure on the likelihood of financial distress on the Spanish Stock Exchange for the time period from 2007 to 2012. The authors applied an empirical study with panel data and conducted regression logistic models with the objective to calculate different measures of goodness of fit. The results of this study show that the prediction power of the financial distress models improves with the incorporation of some corporate governance measures.

The relative contribution of ask and bid quotes to price discovery

Using 2000–2010 data for 84 stocks listed in the Spanish Stock Exchange (SSE) and 2009–2010 data for 240 stocks listed in the New York Stock Exchange (NYSE), we provide robust evidence of daily asymmetries in the contribution of ask and bid quotes to price discovery. Asymmetries happen in 47.7% (62.8%) of the stock-day observations in our SSE (NYSE) sample, being larger in average among small cap stocks. These asymmetries are not driven by noise. Ask (bid) quotes lead in days with excessive buyer (seller) initiated trading, but the relationship weakened over time and with the advent of high-frequency trading.