Stock Market Reaction Research Articles

The real impacts of third-party certification on green bond issuances: Evidence from the Chinese green bond market

This study examines the real effects of third-party certification on green bond issuance by Chinese listed firms over the period 2016–2022. Our findings reveal that the issuance of certified (non-certified) green bonds results in favourable (non-significant or even negative) stock market reactions in both the short and long term, indicating that third-party certification adds value for stock investors. In addition, we analyse the underlying mechanisms that drive the value creation of third-party certification in green bond issuance. We find that third-party certification effectively reduces information asymmetries between firms and investors, induces firms to genuinely prioritise sustainable practices and improves firms' environmental performance, leading to increases in investor demand and firm value. Our further analysis reveals that third-party certification helps green bond issuers attract long-term investors, increases analyst coverage and induces positive opinions from the regulator on firm disclosure. Overall, this study documents that third-party certification of green bond issuers can generate real economic and environmental benefits for issuers.

Stock-Term Market Impact of Major Cyber-Attacks: Evidence for the Ten Most Exposed Insurance Firms to Cyber Risk

The main focus of this paper is to study empirically the impact of major cyberattacks in the market value of the ten most exposed insurers to cyber risk. Using an event study for 53 global cyberattacks, we observe a negative and statistically significant stock price reaction for insurers around the cyberattack disclosure dates. The increase in the assessed probability of an increase in future payments tends to prevail over the increase in demand and/or premiums caused by the disclosure of global major cyberattacks. The results of our analysis also show a higher negative stock market reaction for small insurers and when involves financial information loss.

Do metaverse implementation announcements enhance firms’ stock market value in China? A signaling theory perspective

PurposeThe metaverse has garnered increasing attention from researchers and practitioners, yet numerous firms remain hesitant to invest in it due to ongoing debates about its potential financial benefits. Therefore, it is crucial to analyze how the implementation of metaverse initiatives affects firms’ stock market value – an area that remains underexplored in the existing literature. Additionally, there is a significant lack of research on the contingency factors that shape the stock market reaction, leaving a noticeable gap in managerial guidance on the timing and benefits of investments in the metaverse. To narrow these gaps, we examine whether and when the implementation of metaverse initiatives enhances firms’ stock market value.Design/methodology/approachBased on 73 metaverse implementation announcements disclosed by Chinese listed firms during January 2021–August 2023, we employ an event study approach to test the hypotheses.FindingsWe find that metaverse implementation announcements elicit a positive stock market reaction. Moreover, the stock market reaction is stronger for technology-focused announcements and smaller firms, or when public attention to the metaverse is higher. Nevertheless, firms’ growth prospects do not significantly alter the stock market reaction.Originality/valueThis study extends the nascent literature on the metaverse by applying signaling theory to offer novel insights into the signaling effect of metaverse implementation announcements on stock market value and the boundary conditions under which the effectiveness of the signal varies. Besides, it provides managers with important implications regarding how to tailor the investment and information disclosure strategies of the metaverse to more effectively enhance firms’ stock market value.

Stock market reaction to mandatory sustainability reporting: Does carbon‐intensity and environmental, social, and governance reputation matter?

AbstractWith a sample of 679 listed firms, integrating the event study method and cross‐sectional analysis, we examine the stock market reaction to mandatory sustainability reporting regulation in India. We find that (1) on average, investors react positively to such announcements; (2) the impact varies across different sectors; (3) affected and unaffected firms do not posit significant differences; (4) carbon‐intensive firms are positively impacted; and (5) high environmental, social, and governance (ESG) performance is negatively associated with the event‐induced cumulative abnormal returns (CAR). One standard deviation change in ESG leads to −0.77%, −0.45%, and −0.61% significant changes in [+1,+5], [−5,+5], and [−7,+7] CAR, respectively. The findings align with the value relevance idea and the reputational risk theory but contradict the reservoir of goodwill hypothesis.

Mandating a dividend distribution policy disclosure over fixed dividend policy: a shareholder value perspective

ABSTRACT Shareholders may never be able to perfectly assess the optimal dividends paid by the firm. While fixing a certain dividend percentage by regulators, is one way to ensure shareholders’ dividend rights, mandating a dividend distribution policy (DDP) could be a unique alternative. This study examines the stock market reaction to a regulation that mandated a set of Indian firms to disclose their DDP. Using an event study coupled with Regression discontinuity design, we find that shareholders appreciate the value of the firms affected by the regulation by 1.15% on average, which is roughly 2–2.5% higher than firms unaffected by the regulation. This suggests that mandating information disclosure on dividend payouts can alleviate issues related to shareholders’ right for dividends without affecting firms’ investment decisions. Also, retained earnings play a price-differentiating role in dividend-paying and non-dividend paying firms.

Sharpened “Real Teeth” of China's securities regulatory agency: Evidence from CEO turnover

This study examines the real impacts of the China Securities Regulatory Commission's (CSRC) enforcement actions on CEO turnover in China's fully circulated market. Using data on Chinese publicly listed firms from 2008 to 2022, we find that misconduct behavior alone does not directly lead to CEO turnover. In contrast, CSRC's enforcement actions elicit significant negative stock market reactions for both SOEs and non-SOEs post-2016 and substantially increase the likelihood of CEO turnover, with a notably larger impact on non-SOEs. Furthermore, enforcement actions involving more severe punishments and targeting information disclosure violations and operational misconduct are more effective at compelling CEOs to step down. Potential channels through which external regulatory actions influence firms' CEO replacement decisions include reducing agency costs and enhancing information transparency. These findings suggest that the “teeth” of China's securities regulatory agency now function primarily through market-based mechanisms rather than administrative force, and these “real teeth” are being sharpened by ongoing regulatory reforms.

Impacts of blockchain cooperation project announcements on corporate stock market values: a loose coupling theory perspective

Purpose As a disruptive technology, blockchain technology brings new opportunities and challenges to operations management. We aim to examine the influences of blockchain cooperation project announcements (BCPAs) on firms’ stock market reactions in an emerging market. From 2016 to 2021, a total of 113 BCPAs of listed firms from the Chinese A-share market are selected as samples.Design/methodology/approach This study is based on the loose coupling theory and uses the event study method and probit regression analysis.Findings We find BCPAs positively affect the firm’s stock price on the day they are released. Compared with vertical BCPAs in a supply chain, horizontal BCPAs exert a more positive market reaction. Moreover, a BCPA with a partner within a shorter geographical distance exerts a more positive influence on market reaction. Contrary to the intuition of the decentralized blockchain feature that one-to-many cooperation leads to better benefits, one-to-one BCPAs exert a more positive effect on market reaction than one-to-many BCPAs. We further find that (1) industry type has a certain impact on cooperation mode selection, and (2) manufacturing firms are more inclined to choose one-to-one cooperation than those in service industry.Originality/value We focus on the impact of blockchain cooperative announcements and additionally use the probit regression models to analyze the influencing factors of cooperation mode selection and find the critical role of the industry type, which complements the existing empirical research on blockchain announcements and is conducive to provide decision-making reference for managers.

The Stock Market Reaction to Green Bond Issuance: A Study Based on a Multidimensional Scaling Approach

The Stock Market Reaction to Green Bond Issuance: A Study Based on a Multidimensional Scaling Approach

Are state-owned enterprises more responsible for carbon neutrality? Evidence from stock market reactions to China’s commitment to carbon neutrality

This study investigates whether state-owned enterprises (SOEs) are more responsible for carbon neutrality in the context of a country that produces the most carbon dioxide. It examines listed firms’ market reactions to carbon neutrality commitment for China that was announced first time on 22 September 2020. Using the event study method and based on 2,792 listed firms, we find that overall market reactions to the carbon neutrality commitment is significantly negative, suggesting that firms are expected to exert genuine efforts towards attaining the national goal of carbon neutrality. Furthermore, our results indicate that SOEs encounter more substantial negative market reactions compared to non-SOEs, indicative of higher expectations placed on them for realizing the carbon neutrality commitment. Further analysis reveals that negative market reactions are particularly pronounced for central SOEs as opposed to local SOEs, as the former are perceived to bear a heavier responsibility in achieving national goals. Additionally, SOEs with higher corporate social responsibility scores experience stronger negative market reactions in comparison to those with lower scores. Further analysis based on a difference-in-differences method and a firm-year sample shows that SOEs reduce firm value and carbon emissions intensity more than non-SOEs after the carbon neutrality commitment. Overall, our study supports the argument that SOEs take more responsibility than non-SOEs in achieving carbon neutrality.

The impact of COVID-19 stringency measures on emerging stock market stability: Does economic resilience matter?

PurposeThe current research aims to investigate the impact of coronavirus 2019 (COVID-19) evolution, government stringency measures and economic resilience on stock market volatility in the Middle East and North African (MENA) emerging markets. Other macroeconomic factors were also taken into account.Design/methodology/approachBased on financial data from 10 selected MENA countries, we tested an integrated framework that has not yet been explored in prior research. The exponential generalized autoregressive conditional heteroskedasticity (E-GARCH) was adopted to analyze data from March 2020 to February 2022.FindingsOur research illustrates the direct and indirect effects of the virus outbreak on stock market stability and reports that economic resilience could alleviate the volatility shock. This finding is robust across the various proxies of economic resilience used in this study. We also argue that the negative impact of the pandemic on equity market variation gets more pronounced in countries with higher level of stringency scores.Practical implicationsPolicymakers ought to strengthen their economic structures and reinforce the economic governance at the national level to gain existing and potential investors’ trust and ensure lower stock market volatilities in times of crisis. Our study also recommends some key economic factors to consider while establishing efficient policies to tackle unexpected shocks and prevent financial meltdowns.Originality/valueOur findings add to the evolving literature on the reaction of economic and financial markets to the sanitary crisis, particularly in developing countries where research is still scarce. This study is the first of its kind to investigate the stock market reaction to stringency measures in the understudied MENA region.

The Effect of the Evergrande Bankruptcy on Chinese Real Estate Listed Firms

The objective of the study is to examine the intra-industry effects of Evergrande’s bankruptcy on the Chinese real estate listed firms. Based on an event study, we evidence a negative and statistically significant stock price reaction to Evergrande’s bankruptcy announcement. These results are consistent with the contagion effect. We also find the highest negative impact on real estate firms with greater leverage and a higher similarity in cash flows with the bankrupt firm. Finally, the magnitude of the stock market reaction to Evergrande’s bankruptcy is reinforced or mitigated by firm-specific determinants such as size and liquidity.

Impact of the Covid-19 Pandemic on Stocks Market Performance of Service Industry in Indonesia

In March 2020, Corona Virus Disease (COVID-19) was officially declared a pandemic. As a result, the economic and financial sectors, especially business activities that involve interactions between people severe due to the physical distancing policy. Several studies have analyzed the impact of the pandemic on the economic and financial sectors, but none have specifically discussed the impact on the service sector, especially in Indonesia. This study aims to analyze the impact of COVID-19 on abnormal returns and abnormal volume of stocks in the service industry in Indonesia. Using the event study method, three business sectors most affected by COVID-19 in the service industry are investigated. Impact of the company's internal factors on the cumulative abnormal return is also examined using the robust least square regression method. This study finds a negative stock market reaction to the pandemic and social distancing announcement, and positive reaction for announcement of national economic recovery program and reopening economic activity with health protocol. All events had a negative impact on the abnormal volume of the stocks. Finally, either size or liquidity is found to be a significant driver of abnormal returns.

Revisiting the stock market reactions to the private securities litigation against informational misconducts in China

The recently revised Securities Law in December 2019 and subsequent judicial interpretations issued by the Supreme People's Court (SPC) improved the efficiency of private securities litigation in China. Such a milestone legal reform is also reflected by Chinese courts awarding historically high amount of damages to aggrieved investors. These events are used as the sources of exogenous shocks to both de jure and de facto private enforcement intensity, and the stock market reactions to these events are examined. To control for potential self-selection bias, a sample of “culpable” listed companies is employed. Our sample companies react most significantly to the first game-changing court decision in “Wuyang Judgment”, in which the defendants were ordered to pay more than 1 billion damages. Such effects are observed in addition to the previous changes of “on-the-book” laws of private securities litigation. Finally, the magnitude of the estimated abnormal return is positively correlated with the local judiciary quality proxied by the percentage of cases disclosed, which suggests that the market expects that listed companies in regions with high-quality adjudication should be liable to pay higher damages.

Number of Green Patent Applications and Stock Market Reactions: A Signaling Perspective from China

Number of Green Patent Applications and Stock Market Reactions: A Signaling Perspective from China

How do the Green Energy Stocks React to Green Bond Issuances?

Achieving sustainable development is one of the main issues at the global level and both public and private sector enterprises need to make large – scale investments to fight against climate change. In this respect, green bonds gain importance to raise money for environmentally – friendly projects, especially clean energy. Proceeds from green bonds are earmarked towards financing of investments that have positive environmental impacts. This paper explores the relationship among green bond issuances and stock market reaction with special focus on renewable energy firms. Herein, through a dataset of green bond issuance announcements worldwide by 46 unique firms over the period from 2014 to 2023, we investigate how the share prices respond to such announcements using event – study methodology. From the empirical evidence of the downward stock price movements, we suggest that investors react negatively to the announcement of green bond issuances. In other words, we find significant and negative cumulative average abnormal returns (CAAR) across all the event windows except in the window of [0, 10], meaning that our findings are robust to several alternative event windows. Further, we determine that the share price response, in general, does not differ depending on the use of green bond proceeds and the years.

Recovering from geopolitical risk: An event study of Huawei's semiconductor supply chain

Amidst the ongoing globalisation of supply chains, geopolitical issues have emerged as a significant source of supply chain risk for firms. This has recently been illustrated in the trade sanctions adopted by the US against the Chinese semiconductor industry, particularly in the accessing of semiconductor chips. A notable event here, that we focus on in this paper, involves how the leading telecommunications company Huawei has been impacted by this and most interestingly how they have been able to respond, by being able to successfully launch new chip-based products during the US semiconductor chip technology blockade, despite the sanctions ban. This has been achieved with the support of key supplier, SMIC, who has become a major 7 nm chip supplier for Huawei. Employing the event study research method, this study initially examines the stock market's response to Huawei's new product release with these new SMIC-sourced semiconductor chips. It also appraises the propagation effects on Huawei's and SMIC's supply chain partners. This exposes the differential impact on the supply chain members of Huawei (focal firm) and SMIC (main supplier). The results reveal predominantly positive responses from Huawei's suppliers and customers, as well as SMIC's suppliers and customers, to these incidents, with Huawei's suppliers' and SMIC's suppliers' and customers' share prices responding positively to the release of Huawei's new product, exhibiting substantial median stock market reaction of 1.53%, 1.62%, and 2.52% on Day 0, respectively, it shows, in contrast, that Huawei's customers did not exhibit a positive share price reaction to the development of this newly sourced product. It is noteworthy that SMIC's supply of chips to Huawei has had a significantly positive impact on both Huawei and SMIC's suppliers and customers. With the impact varying across different roles within the supply chains, this study provides useful insights for understanding the propagation effect of good news in the supply chain resulting from firms' proactive action in response to imposed sanctions for a key supply component.

Analyzing the impact of financial news on the stock market using Natural Language Processing techniques

In the current financial domain, the impact of financial news on the stock market has become increasingly significant. Its rapid dissemination speed and wide coverage have made it a key factor in influencing investor sentiment and decision-making. Therefore, this study aims to explore how to utilize Natural Language Processing (NLP) technologies to analyze the impact of financial news on the stock market. The research involves collecting multiple sources of financial news and corresponding stock market data, and employs methods such as text preprocessing, sentiment analysis, and event extraction to process and analyze the news content. By constructing machine learning models, this study attempts to quantify the sentiment orientation of financial news and the impact of specific events on stock market volatility. The research questions focus on how to effectively extract valuable information from financial news and predict its specific impact on the stock market. The results indicate that sentiment orientation and key events in financial news are significantly correlated with short-term fluctuations in the stock market, especially for news reports on specific industries or companies. Moreover, the application of deep learning models further enhances the accuracy of predicting stock market reactions. This study not only provides financial market analysts with a new analytical tool but also offers a new perspective on understanding how financial news affects the stock market.

MARKET REACTION TO THE IMPLEMENTATION OF BASEL CAPITAL IN SOUTH AFRICAN BANKS: EVENT STUDY APPROACH

This study investigated the stock market reaction and the effect of the implementation of Basel II and Basel III on the stock returns of South African banks. In achieving this aim, this study focused on daily and annual data of six commercial banks from 3rd January 2004 to 31st December 2022. The event study methodology was employed to identify abnormal returns around the specified event dates. The effect of the changes in Basel capital requirements on stock returns was not uniform across the four events. The market reacted favourably to the implementation of the Basel II requirements in the country. There was a significantly negative market reaction to the subsequent full implementation of Basel III official. Finally, higher Basel capital requirements (CAR) was associated with lower bank stock returns. The findings implied that bank regulators increase capital to strengthen the banking system but constrain the maximisation of shareholders’ values.

Firms’ voluntary climate action disclosures and stock market reaction: A BERT-based analysis of earnings conference calls in China

Climate information disclosure plays a pivotal role in fostering sustainable practices and enhancing transparency in climate risk. However, it is unclear whether firms’ voluntary climate-related disclosures effectively convey incremental information to investors. In the empirical context of Chinese listed firms, we explore the valuation effect of firms’ voluntary climate action disclosures, which is quantified from the transcripts of earning conference calls using a novel natural language model, BERT. Our results reveal that firms with more voluntary climate action disclosures experience more positive stock market reactions, indicating that investors value transparency on corporate commitment to future climate actions. The positive valuation effect of disclosures tends to be more pronounced in firms with higher disclosure quality, more green-preference investors, and higher investor attention. Moreover, we find that the positive valuation effect is achieved through enhancing corporate reputation and investor confidence. We further show that firms’ voluntary climate action disclosures exhibit a significant positive correlation with green innovations and environmental pillar scores, dispelling concerns of mere “greenwashing”. Overall, our evidence contributes to understanding the role of climate disclosures in investor assessment of firms’ climate risks and opportunities. The findings provides fresh insights for policymakers and regulatory bodies involved in shaping disclosure frameworks that promote sustainable business practices.

Can old sin make new shame? Stock market reactions to the release of movies re-exposing past corporate scandals

We study stock market reactions to the release of movies that re-expose past publicly known corporate scandals. Using a sample of 54 event firms featured in 23 movies, we find that these firms have significantly persistent negative abnormal returns following the movie releases. We posit that such negative reactions are associated with the adverse public perception of the firms induced by the scandal re-exposing movies. Consistent with this hypothesis, we find more pronounced negative abnormal returns for the firms featured in the more popular movies. Moreover, the event firms experience increased implied costs of capital following the movie releases.