Stock Market Reaction Research Articles

Menguji Dampak Omicron terhadap Harga Saham dan Volume Transaksi: Studi Kasus pada Indeks Saham LQ-45 di Bursa Efek Indonesia

Rapid stock price movements, especially during the ongoing pandemic, demand heightened attention from investors. The unpredictability of stock prices and market reactions to COVID-19 and its variants poses a challenge in predicting their future trends. Beyond stock prices, examining the trading volume of listed companies is crucial. This research aims to analyze potential differences in stock prices and transaction volumes within the LQ-45 Stock Index following the Omicron announcement in Indonesia. The study focuses on the 14 days preceding and following the Omicron announcement, utilizing a saturated sampling approach. The data is analyzed through the Wilcoxon Signed Rank Test for hypothesis testing. Findings suggest significant disparities in stock prices and transaction volumes before and after the Omicron announcement. The research concludes that news or announcements related to the Omicron variant adversely impact the capital market, aligning with event study principles. Such announcements influence market responses, resulting in fluctuations in stock prices and transaction volumes.

News Diffusion in Social Networks and Stock Market Reactions

Abstract We study how the social transmission of public news influences investors’ beliefs and the securities markets. Using data on social networks, we find that earnings announcements from firms in higher-centrality counties generate a stronger immediate price, volatility, and trading volume reactions. Post-announcement, such firms experience weaker price drift and faster volatility decay but higher and more persistent volume. These findings suggest greater social connectedness facilitates the timely incorporation of news into prices, as well as opinion divergence and excessive trading. We propose the social churning hypothesis, which is confirmed using granular data from StockTwits messages and household trading records.

Price limits, informed trading, and information consumption

We use a policy change in the daily price limit rules in the Chinese stock market to examine the impacts of price limits on stock market reactions to corporate earnings announcements. We find that compared with the control stocks’ prices, the prices of stocks that experience a relaxation in price limits become more sensitive to corporate earnings surprises. Further analysis shows that more effective responses are likely associated with the increased trading intensity of nonretail investors and short sellers. Overall, we suggest that the relaxation of the price limit contributes to the incorporation of firm-specific information into stock prices.

How does stock market react to environmental penalty announcements?

Environmental penalty announcement (EPA) has received increasing attention for its potential to convey valuable information and affect capital market performance. Using data on listed companies in China, this paper examines stock market reaction to environmental penalty announcements, the behavior of different types of investors, and the moderating factors of these responses. The findings show that (1) disclosure of EPA by listed companies results in negative abnormal returns, but this negative market reaction is not sustained. (2) Heavy polluters and non-state-owned enterprises are exposed to more negative abnormal returns when they disclose EPA. (3) Environmental reputation can mitigate the negative stock market reaction to EPA, while the participation of green investors will intensify this reaction. (4) Retail investors tend to sell stocks of companies that disclose EPA as media attention increases, while institutional investors increase their shareholding especially in companies that already have high holdings, high ESG scores, and in regions with low levels of green finance development. This paper serves as a reference for governments, firms, and stakeholders on stock market reaction to environmental information disclosures.

December doldrums, investor distraction, and the stock market reaction to unscheduled news events

We examine how investor distraction during the December holiday season impacts the stock market’s reaction to salient firm-specific news. We find that both retail and institutional investor attention is significantly lower in December. Importantly, only unscheduled credit rating downgrades and 8-K filings experience lower investor attention in December; we find no equivalent effect for pre-scheduled earnings announcements. Consistently, we document significantly weaker market responses in December toward unscheduled firm news only. Firm prominence mitigates this December distraction effect. Our results highlight how investor distraction in December can lead to a muted market reaction to unscheduled, but salient, firm-specific news.

Climate change, tax avoidance, and shareholder value: Evidence from the Paris Agreement

AbstractMotivated by the rapidly emerging literature on climate change and finance, we explore the effect of corporate tax avoidance on shareholder value around the adoption of the Paris Climate Agreement. Companies engaging in greater tax avoidance experience significantly more favorable stock market reactions. Companies that achieve greater savings through tax avoidance have a larger surplus of resources that can be directed toward climate‐related actions in alignment with the Paris Agreement, resulting in enhanced shareholder value. Furthermore, the advantageous impact of tax avoidance on shareholder wealth is significantly less pronounced for companies that pay out larger dividends.

STOCK MARKET REACTIONS TO PUBLIC RELEASE OF ENVIRONMENTAL RANKINGS OF HEAVY POLLUTERS: THE ROLE OF ULTIMATE CONTROLLERS

Adopting the event study method, this paper examines how the stock market reacts to the public release of environmental performance rankings of heavy polluters. Specifically, we explore the impact of the public release of the 100 best and 100 worst companies in terms of environmental performance on the stock prices of companies involved, and the potential moderation of ultimate controllers. We find that the stock prices of the companies on the lists were negatively affected by the event. However, stock price changes are not significantly related to the relative rankings on the list. Furthermore, companies whose ultimate controllers possess a larger control–ownership wedge experienced a less severe fall in stock prices than did their counterparts. This study sheds light on the nuances of the financial implications of negative environmental publicity.

Stock market reaction to new energy vehicle industry development plan: an event study in China

ABSTRACT The targets of energy conservation, decarbonization, and industry reinvigoration have significantly influenced the design of China’s new energy vehicle (NEV) industrial policies and nationwide electrification. As a monumental policy framework for energy transition in transportation sector, the NEV industry development plan plays an influential role in promoting cleantech diffusion and enhancing NEV competitiveness. This study employs an event study method to investigate the stock market reaction to the NEV plan shocks. The NEV plan announced in 2020 receives a markedly positive stock price effect of 3.72% in the 6-day event window. Heterogeneity tests on subsamples indicate that state-backed entities exhibit a similar effect to the total sample, while the automotive manufacturing class and original equipment manufacturers see a significantly higher market value gain of 6.56% and 13.34%, respectively. However, battery manufacturers, as one of the key participants in the NEV value chain, experience an insignificant stock price effect. This study documents the financial consequences of clean energy policies specific to the emission-intensive automotive manufacturing sector, highlights the effectiveness of government-to-investor signalling in a cleantech diffusion context, and reveals the implications to other economies seeking to deploy clean transport and enhance environmental sustainability.

The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022

PurposeThis paper aims to analyze stock market reactions to announcements of regulatory and law enforcement penalties imposed on banks operating in the USA.Design/methodology/approachThis paper examines abnormal stock market returns around penalty announcements for banks operating in the USA from 2000 to 2022. The authors use a comprehensive data set of nearly 600 penalties to conduct their event study.FindingsThis paper finds evidence of positive and statistically significant abnormal returns on the day of the penalty announcement. However, the authors also observe negative and statistically significant abnormal returns days later, violating the semi-strong efficient market hypothesis.Originality/valueBy accounting for confounding events and analyzing subsamples, the authors reconcile conflicting results from prior literature that have variously shown negative, null or positive stock market reactions to penalty announcements.

The Political Uncertainties of the United Kingdom-2022 and Stock Market Reactions: An Event Study Analysis for LSE and Other Major European Stock Markets

The Political Uncertainties of the United Kingdom-2022 and Stock Market Reactions: An Event Study Analysis for LSE and Other Major European Stock Markets

The stock market reaction to political and economic changes: the Spanish case

As other European countries, Spain has experienced a turmoil in which new political parties emerged with force after the global financial crisis in 2008. In this context, we analyze whether the empirical implications of the opportunistic and partisan theories, as well as the Uncertain Information Hypothesis, are met in the Spanish stock market, considering the size and the industry of the companies. The horizon of our study takes into account the seven general elections, 24 regional elections and 4 European elections held from 2002 to 2019, period in which Spain is fully integrated in the economic and monetary union and under the macroeconomic imbalance procedure. Our results do not support the opportunistic and partisan theories, or the Uncertain Information Hypothesis. Our evidence suggests that the short-term negative market reaction to the general elections is linked to the uncertainty with a change in the political sign of the incumbent. Besides, it is not related to size or industry characteristics.

Banks stock market reaction to the Italian and Spanish windfall tax announcement: an event study

Banks stock market reaction to the Italian and Spanish windfall tax announcement: an event study

Touched by Quakes: Mortality Salience and Corporate Philanthropy

ABSTRACT This study examines how natural catastrophes affect corporate philanthropic activities in China. Firms located in areas experiencing severe seismic losses increase charitable donations. The effect is stronger when firms demonstrate stronger social responsibility, operate in higher-mortality regions, and are led by female or elder CEOs, supporting the mortality salience hypothesis. We address endogeneity issues with an instrumental variable and a propensity score matching approaches. Furthermore, firms with higher charitable donations experience a more positive stock market reaction around the 2008 Wenchuan Earthquake. Overall, our findings suggest that natural catastrophes amplify financial market participants’ mortality salience and affect their economic decisions.

An empirical analysis of the characteristics and motivations of listed companies raising capital through private placements

Although private placements have been possible in France since January 22, 2009, they have attracted no academic attention. In line with recent literature on private placements elsewhere, we investigate the scope of the phenomenon in France together with the characteristics of firms engaging in them. The results show that private placements outnumber more traditional public fundraising methods, justifying our interest in them. First, we conduct an event study that reports no evidence of apositive abnormal return. Second, we conduct logistic regressions to determine in what instances firms seek private placements. The results reveal that firms open to private placements are characterized by high information asymmetry. Financial difficulties or the search for specific stock market reactions do not justify their use.

Revisiting Dividend Policy and Stock Market Reaction of Indonesian Manufacturing Enterprises amidst the COVID-19 Crisis: A Series of Robustness Checks

Revisiting Dividend Policy and Stock Market Reaction of Indonesian Manufacturing Enterprises amidst the COVID-19 Crisis: A Series of Robustness Checks

Measuring firm exposure to government agencies

We use textual analysis of mandatory accounting filings to develop firm-level, time-varying measures of exposure to individual government agencies including the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS). The measures vary predictably across industries and with agency-specific events such as the Sarbanes Oxley Act at the SEC and budget cuts at the IRS. The measures positively relate to undisclosed agency investigations and financial statement downloads. Firms' total exposure across government agencies negatively relates to their profitability, consistent with exposure to government agencies imposing net costs. Consistent with a causal interpretation of these results, the positive stock market reaction to the surprise election of Donald Trump, who promised to reduce the power of government agencies, positively varies with firms' exposure to government agencies. As initial applications of our measures, we demonstrate that expanded SEC oversight increases firms' stock liquidity and reduced IRS oversight decreases firms’ effective tax rates.

Trade War Actions, Reporting Strategies, and Stock Market Reactions

Investors’ perceptions of uncertainty have increased since Donald Trump’s inauguration, primarily as a result of trade frictions. In the context of China-US trade frictions, this study investigates the joint effects of the actions of the parties and media tone on the Chinese stock market. The trade friction reports are classified into 12 groups based on two dimensions, that is, the actions of the parties and the tone of the state-controlled media. The result shows that the role played by the state-controlled media depends on the actions taken by both the parties, as well as the type of firms. Specifically, when the US took action, either launched attacks or made concessions, adopting a high tone played some role in boosting returns and curbing fluctuations; adjusting reporting strategies also played some role in elevating the liquidity of both types of firms and influencing domestic southbound investments. Market reactions were more influenced by the actions than the official attitudes when China made concessions or when both sides took action (attacks or concessions).

Impacts of digital technology innovation for social responsibility of platform enterprises on shareholder value

PurposeConsidering rapid digitalization development, this study examines the impacts of digital technology innovation on social responsibility in platform enterprises.Design/methodology/approachThe study applies the event study method and cross-sectional regression analysis, taking 168 digital technology innovations for social responsibility issued by 88 listed platform enterprises from 2011 to 2022 to study the impact of digital technology innovations for social responsibility announcements of different announcement content and platform attributes on the stock market value of platform enterprises.FindingsThe results show that, first, the positive stock market reaction is produced on the same day as the digital technology innovation announcement. Second, the announcement of the platform’s public social responsibility and the announcement of co-innovation and radical innovation bring more positive stock market reactions. In addition, the announcements mentioned above issued by trading platforms bring more positive stock market reactions. Finally, the social responsibility attribution characteristics of the announcement did not have a significant differentiated impact on the stock market reaction.Originality/valueMost scholars have studied digital technology innovation for social responsibility through modeling rather than second-hand data to empirically examine. This study uses second-hand data with the instrumental stakeholder theory to provide a new research perspective on platform social responsibility. In addition, in order to explore the different impacts of digital technology innovation on social responsibility, this study has classified digital technology innovation for social responsibility according to its social responsibility and digital technology innovation characteristics.

Curse and blessing: The effect of the dividend ban on euro area bank valuations and syndicated lending

At the outbreak of the Covid-19 pandemic, the European Central Bank issued a strong recommendation towards banks to halt dividend payouts. The goal of this de facto dividend ban was to boost banks' capital to ensure the supply of credit. However, given the importance of dividends for investors, this unprecedented measure is likely to have impacted bank valuations. Hence, banks may have chosen to preserve their higher capital buffers to boost payouts after the lifting of the ban, rendering the intended positive effect on credit supply a priori uncertain. We first investigate the effect of the dividend ban announcement on euro area banks' valuations and find a significantly negative impact. Second, we show that banks significantly expanded credit supply in the syndicated loan market, without counteracting effect of the negative stock market reaction. Our findings are corroborated when we exploit the multi-bank nature of syndicated loans in a within-loan setup.

Exploring the connections: Dividend announcements, stock market returns, and major sporting events

This study conducts a detailed investigation into the interplay between major sporting events, specifically the ICC Cricket World Cups and FIFA Football World Cups, and their potential impact on the relationship between dividend announcements and stock market returns. Beyond the customary exploration of investor sentiment and its connection to stock market returns, our research thoroughly examines the effects of these significant sports events on the stock market's reaction to dividend announcements. Drawing on extensive FTSE 350 index data spanning January 1990 to December 2021, we employ event study methodology as the primary analytical framework. To bolster the reliability of our findings, we apply the Generalized Method of Moments (GMM) estimation method, addressing potential endogeneity concerns. Our results uncover a distinct pattern—the stock market exhibits a less favourable response to dividend increases announced following England's victories in major sporting events, such as the FIFA Football World Cup and ICC Cricket World Cup, compared to instances where they faced defeat. Additionally, we observe a more negative market response to dividend decreases announced following England's losses in these pivotal sporting events, as opposed to England emerging victorious in these key contests. This research contributes valuable insights into the intricate relationship between sports passion and market dynamics, offering implications for both scholarly discourse and investment strategy formulation.