Stock Price Reaction Research Articles

Comparative Impacts of Ex-Ante and Ex-Post Regulation in Digital Markets: An Event Study Analysis of Stock Price Reactions

Abstract In the analysis of digital markets and competition, it is imperative to consider the regulatory landscape. Specifically, with the shift from ex post to ex ante regulation in competition law, establishing a competitive environment reflective of regulatory costs becomes imperative. This study investigates the market’s assessment of ex ante regulation through stock price event analysis. The findings reveal that the market perceives a 10–20 % negative impact on businesses from ex ante regulation for each event upon finalization of the regulatory framework or identification of regulated entities. Unlike ex-post regulation, which targets specific businesses and yields varied impacts in competition law violations, ex ante regulation’s broader influence is remarkable. ex ante regulation incurs significant business costs, with the market assessing its impact as surpassing that of ex-post regulation when viewed holistically. Acknowledging these regulatory costs underscores the imperative for stringent oversight to guarantee the attainment of regulatory aims and objectives.

Shock persistence, uncertainty, and news-driven business cycles

Abstract This paper distinguishes news about short-lived events from news about changes in longer term prospects using surveys of expectations. Employing a multivariate GARCH-in-Mean model for the US, the paper illustrates how the different types of news influence business cycle dynamics. The influence of transitory output shocks can be relatively large on impact but gradually diminishes over two to three years. Permanent shocks drive the business cycle, generating immediate stock price reactions and gradually building output effects, although they have more immediate output effects during recessions through the uncertainties they create. Markedly different macroeconomic dynamics are found if these explicitly identified types of news or uncertainty feedbacks are omitted from the analysis.

Impact of green bond issues on Euronext firms’ stock abnormal returns

Climate change is forcing countries to take strategic measures to reduce the negative impact on future generations. In this context, sustainable finance has played a key role in sustainable development since the establishment of environmental, social and governance principles. The underlying market has developed rapidly since its inception, with green bonds being the most prominent instrument. This article aims to study the impact of green bond issues on the abnormal stock returns of stocks listed on the main Euronext indices. The sample includes 58 issues carried out between 2014 and 2022 by 21 different firms listed on the AEX (Netherlands), BEL 20 (Belgium), CAC 40 (France), ISEQ 20 (Ireland), OBX (Norway) and PSI (Portugal) indices. The methodology follows the procedures of the event study using the market model. The results show significant positive stock price reaction on the issue date. After the abnormal losses just before the issues, suggesting the reserves of this consolidating market, abnormal gains persisted for over a week, providing evidence against the weak efficiency Euronext’s financial markets. The findings are useful for policy makers and entrepreneurs to promote innovative initiatives that encourage the financing and development of environmentally sustainable infrastructures.

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.

Do Investors Value Workforce Gender Diversity?

We examine whether investors value workforce gender diversity. Consistent with the view that investors believe workforce gender diversity can be valuable in major firms, we use event studies to demonstrate that U.S. technology firms and financial firms experience more positive stock price reactions when it is revealed that they have relatively higher (versus lower) workforce gender diversity numbers. For instance, we find that Google’s revelation of relatively low workforce gender diversity numbers triggered a negative stock price reaction, whereas eBay’s revelation of relatively high workforce gender diversity numbers triggered a positive stock price reaction. These stock price reactions are both economically and statistically significant; for example, we estimate that if a technology firm had revealed gender diversity numbers that were one standard deviation higher, its market valuation would have increased by $1.11 billion. Corroborating this plausibly causal field evidence, we also find positive investor reactions to workforce gender diversity in randomized experiments using Prolific participants with investing experience; these reactions seem to be underpinned by investors’ beliefs about potential upsides of diversity for the firm (e.g., reduced legal risks; increased creativity) but not by investors’ beliefs about potential downsides of diversity for the firm (e.g., increased conflict). Our findings highlight the importance of understanding investors’ intuitions or beliefs about major organizational phenomena such as workforce gender diversity. Our results also point toward a new type of business case for diversity, driven by investors: if major firms had more workforce gender diversity, investors may “reward” them with substantially higher valuations. Funding: This research is supported by NUS (National University of Singapore) Startup Grant WBS A-0003900-00-00 to D. P. Daniels.

Market-based patent value of green transformation technologies

This paper employs the green technology classification published by the Japan Patent Office to estimate the values of green and non-green innovations. By computing patent values based on stock price reactions to the announcement of patent issuance, this paper finds that, on average, green patents have higher values than non-green patents in the pooled sample. However, results from the matched sample indicate the presence of selection biases.

The Effect of the RMAT Designation on Biotechnology Stock Prices, Drug Development Timelines and Outcomes: An Empirical Analysis

This research examines the impact of the U.S. FDA's Regenerative Medicine Advanced Therapy (RMAT) designation on biotechnology and small pharmaceutical companies, focusing on both stock price reactions and drug development timelines. The research employs an event-study methodology to analyze share price movements following RMAT announcements and evaluates the long-term product development outcomes for these companies. Findings reveal that while RMAT designation leads to an initial short-term stock price increase of approximately 8.11% within five days, this optimism diminishes over time, with long-term trends showing a decline in stock value. Furthermore, products under RMAT designation exhibited longer development timelines compared to non-RMAT therapies, raising questions about the designation's effectiveness in accelerating product availability. The study underscores the complex implications of RMAT for stakeholders, emphasizing the need for strategic planning and further regulatory refinement to better align short-term investor expectations with long-term product development realities.

Heterogeneous stock market impact of Russia–Ukraine War for oil and gas companies

Purpose This paper aims to examine the short-term market impact of the beginning of the military conflict between Russia and Ukraine (24 February 2022), the world’s largest oil and gas companies. Design/methodology/approach The authors examine the world’s 100 largest listed oil and gas companies at and around the beginning of the military conflict between Russia and Ukraine using an event study methodology. Findings The authors observe a positive and statistically significant stock price reaction at and around the military conflict. These results are consistent with the asset pricing perspective. Conversely, the stock market returns of Russian oil and gas companies, as well as those companies that were “forced” to divest in Russia due to corporate activism, exhibit a negative and statistically significant impact from the conflict. These reactions are reinforced or mitigated by company-specific characteristics such as size, profitability and institutional ownership. Finally, the findings indicate that companies engaged in oil and gas exploration and production report abnormally higher returns compared to firms in the other two subsectors of the industry. Originality/value The effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature.

Beyond borders: Interlocking directorships and stock price reactions of Islamic firms

Announcing a director's additional appointments may positively reflect the skills and negatively reflect the workload of the director and, therefore, may influence how investors perceive the shareholder value of the director's home firm. We examine the announcement effect of 276 additional appointments on the stock price of Islamic firms from 2010 to 2022. Event study tests show that the appointment of directors to other firms in Islamic jurisdictions decreases the home firm's stock price, on average. For appointments to non-Islamic firms, the stock price increases in the appointing firm's relative market capitalization, which brings prestigious benefits to the home firms.

How do stock markets react to dividend announcements during the COVID-19 pandemic? Evidence from the GCC markets

PurposeThis study aims to investigate how stock markets responded to corporate dividend policy changes during the COVID-19 pandemic in the Gulf Cooperation Council (GCC) countries. Likewise, it explores how efficiently market prices incorporate the news by examining the speed of stock price adjustment to various dividend announcements.Design/methodology/approachThe sample includes 741 dividend announcements from 2017 to 2021 made by 326 firms listed in the stock markets of the GCC countries. A series of regression analyses examine how dividend announcements influence the market reaction during the COVID-19 pandemic, controlling for other well-documented firm characteristics.FindingsThis study reveals an adverse stock price reaction to all the dividend announcements in most GCC markets. The findings also show strong asymmetric effects of COVID-19 on how the markets react to different dividend changes. Likewise, the authors show that investors tend to underreact to the good news of dividend increases amid hard times of crises due to prevailing uncertainty and bearish sentiment. Besides, regression results reveal that firms with dividend reductions during the pandemic experience less adverse market reactions than dividend-decreasing firms prepandemic.Practical implicationsFor firms, the findings confirm the role that corporate dividend policy can play in conveying signals to investors, especially during hard times of crises and turbulences, thereby affecting their share price. For policymakers, the results substantially affect market efficiency and firm valuation in the GCC markets.Originality/valueThis study is not only one of the first few attempts to scrutinize how the pandemic has affected the market reaction to changes in corporate dividend policies but also, to the best of the authors’ knowledge, it is the first to examine how corporate dividend policy could affect stock markets during COVID-19 in the context of GCC markets.

ESG unpacked: Environmental, social, and governance pillars and the stock price reaction to the invasion of Ukraine

How do the individual pillars of environmental, social, and governance (ESG) factors perform in times of war? Focusing on euro area stocks around the Russian invasion of Ukraine in 2022, we investigate this question using an event study methodology. Our findings suggest that firms with higher governance scores experienced stronger abnormal positive stock returns, implying that investors particularly valued well-governed firms amidst the uncertainty and adversity. However, the importance of good governance was lower for countries with higher dependency on oil imports from Russia. In contrast, social and environmental considerations appeared to receive less attention from investors during this crisis period. Our study highlights the heterogeneous nature of ESG factors and underscores how their relevance can be context-dependent, especially in uncertain times marked by geopolitical conflicts.

Learning ESG from stock prices: Evidence from a quasi‐natural experiment in China

AbstractThis study examines the impact of stock market liberalisation on managerial environmental, social and governance (ESG) learning from stock prices. Using a quasi‐natural experiment, specifically the Shanghai‐Hong Kong Stock Connect (SHHKC) and Shenzhen‐Hong Kong Stock Connect (SZHKC), we find that stock market liberalisation enhances firms' ESG expenditure sensitivity to stock prices, implying that managers extract greater amounts of ESG information from stock prices. Additionally, the mechanism test shows that liberalisation influences managerial learning by enabling stock prices to incorporate foreign investors' private ESG information at both aggregated and granular levels. Moreover, we demonstrate the specific ESG information that managers acquire from stock prices. We also find that the learning effects are stronger for firms in polluting industries, without ESG‐proficient managers, and without access to alternative learning channels, lending further support to managerial ESG learning from stock prices. Finally, we demonstrate that the increase in ESG expenditure leads to subsequent ESG performance improvement. Our findings provide the managerial implication that managers under transformation pressure may seek information from ESG‐related stock price reactions.

Stock Price Reactions to the Information and Bias in Analyst-Expected Returns

ABSTRACT I use a novel decomposition to estimate information and bias components from the returns implied by analyst price targets and provide evidence that prices simultaneously under-react to information and over-react to bias. Price reactions to information are permanent, and prices drift in the direction of their initial reaction for up to 12 months. Price reactions to bias are transitory, and prices reverse their initial reaction after about three months. Price reactions are relatively efficient. Approximately 85 percent of the total price reaction to information occurs during price target announcement months. Market participants are able to mostly (but not fully) debias analyst-expected returns before incorporating them into prices, with the announcement-month reaction to bias being relatively weak at about 15 percent of its reaction to information. A trading strategy analysis implies that mispricing induced by bias is only about one-third of that implied by prior research. JEL Classifications: G12; G14; G40.

Empirical evidence on disclosing cyber breaches in an 8-K report: Initial exploratory evidence

The primary objective of this exploratory study is to assess whether 8-K disclosure, compared to alternative disclosure, explains the inconsistent results in prior studies examining the impact of cyber breaches on stock prices. The major finding of this study is that the negative magnitude of the stock price reaction and the duration of the reaction are substantially different for firms disclosing their cyber breaches via an 8-K compared to firms disclosing their breaches via other sources. Our results provide support for the new cybersecurity disclosure rules issued by the Securities and Exchange Commission (2023).

The impact of a compressed workweek on shareholder value: An event study analysis of Belgium's 4‐day workweek legislation

AbstractWhile the compressed workweek (CWW) has gained traction in recent years, its impact on firms' financial performance is not well understood. This study addresses this gap in the literature by examining the effect of the CWW on shareholder value. Drawing on social exchange theory and its norm of reciprocity, we introduce a conceptual model on the main effect of the CWW on shareholder value, and the moderating roles of the anticipated type and degree of employee reciprocation. To test the model's predictions, we exploit the announcement of Belgium's mandatory adoption of a CWW in February 2022 as the setting for a policy event study analysis. We find positive average stock price reactions of Belgian listed firms to the CWW's announcement, consistent with investors expecting the CWW to result in favorable employee reciprocation. Stock price reactions are more positive for firms with a lower ex ante employee productivity, suggesting employees are predicted to reciprocate with higher efforts. Stock price reactions are also more positive for firms with a higher reliance on knowledge workers, consistent with these employees deriving a greater utility from flexible working arrangements. Robustness tests, including a placebo analysis and an event study of international firms with Belgian subsidiaries, corroborate our results. Our study offers several theoretical contributions and has practical implications for HR managers and policymakers.

Strategic reactions and investor outcomes: S&P 500 companies in the wake of Russia’s 2022 invasion of Ukraine

ABSTRACT After Russia invaded Ukraine on 24 February 2022, a US-led international coalition imposed economic sanctions against Russia. Consequently, companies doing business in Russia had to decide how to respond. Utilizing an event study approach, this study examined how investors reacted to the initial announcements of 221 S&P 500 firms regarding their Russian business operations in response to the invasion. The findings show that companies that initially responded strongly and decided to suspend their operations in Russia saw a 2.4% adverse stock price reaction compared to companies that chose to continue their business in Russia with a scaled-down operation. Stocks of consumer discretionary and consumer staples companies performed worse in the respective industry group comparison with energy, healthcare, and materials companies. The empirical findings also indicated a weak positive relationship between investors’ reactions and the time of releasing information on a company’s initial response. The research further examined 182 S&P 500 companies to explore whether firm-level associations existed between the business size of a company in Russia and its strategic behavior. The findings indicated an association existed between thebusiness size and how a company responded and between the business size and when announcements were made.

ESG News Sentiment and Stock Price Reactions: A Comprehensive Investigation via BERT

In this paper, we examine in a systematic manner how investors react to the sentiment of instant ESG news. Instead of acquiring proprietary ESG news or events datasets directly from specific ESG data providers, we extract fresh ESG news directly from a plethora of raw news articles. We showcase how the latest development in NLP (i.e. the BERT model) can be applied to build a comprehensive and fresh ESG news dataset, and how company ESG news sentiment can be efficiently recognized by a machine. Overall, we find that the market reacts to ESG news based on news sentiment. On the event day, positive ESG news has an average abnormal return of 0.31% while negative ESG news leads to a mean value of -0.75\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$-0.75$$\\end{document}%. More interestingly, we find that the impact of ESG news may depend on the company’s historical ESG record. The negative impact of negative ESG news has less severe consequences for companies with an overall better ESG record, while the positive impact of positive ESG news may be more pronounced for companies with a worse ESG record.

PUBLIC DISCLOSURE OF INFORMATION SECURITY BREACH INCIDENTS: SHORT-TERM STOCK MARKET REACTION ON INDIAN LISTED FIRMS

ABSTRACT Data breach incidents are growing by the day and firms struggle to detect, defend, and respond to such breaches. Nowadays, security breaches are considered one of the major concerns for corporate organizations around the world. Hence, it is essential to assess the impact of such breaches on organizations. This article reports stock price reaction due to public disclosure of information security breach (ISB) incidents on publicly traded firms of India. Using the event study methodology on a sample of 120 publicly announced ISB incidents between January 2004 and April 2019 pertaining to 69 publicly listed firms of India, we found that exposure to an ISB incident exacerbates negative stock price reactions based on both one-factor market model and Fama-French three-factor model. On average, breached firms lost 0.55% of their market value within two days post the announcement of ISB incidents. Further, we found some factors that significantly negatively impacted Cumulative Abnormal Return (CAR). Important emerging factors such as type of compromised data, sentiment, subjectivity, and remedial strategy significantly impact CAR. According to our study findings, we suggest that firms should mention remedial measures in terms of apology and/or compensation in the ISB disclosure. Furthermore, the result indicates that investors penalize listed firms for subsequent ISB incidents. Thus, our findings may guide Chief Information Officers (CIOs), information security managers, and IT managers of publicly traded firms to devise various strategies in terms of IT security measures and content of the ISB disclosure.

Corporate Social Responsibility and Stock Price Reactions

This research aims to investigate the impact of CSR disclosure on share prices, mediated by profitability. This research uses a quantitative method and gathering secondary data from OSIRIS and Company Sustainability Reports on the Indonesia Stock Exchange (BEI) website, as well as relevant company websites. This study's sample consists of 99 mining companies from 2018 to 2022. To determine the indirect effect of the mediating variable, this study used multiple regression analysis using the IBM SPSS and the Sobel test. The findings show that CSR Disclosure has no significant effect on share prices due to the low proportion of CSR disclosures in the company's sustainability report. Meanwhile, CSR Disclosure has a significant negative effect on profitability, and profitability has a significant positive effect on share prices. Profitability can mediate the relationship between CSR Disclosure and share prices.

War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict

PurposeThis paper examines the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on the world’s largest defense firms.Design/methodology/approachThe authors examine the world’s 100 largest listed defense firms at and around the beginning of the military conflict between Russia and Ukraine using an event-study methodology.FindingsWe observe a positive and statistically significant stock price reaction at and around the beginning of the military conflict. These results are consistent with the asset-pricing perspective/expected cash flow hypothesis. Consistent with the captured regulator theory, we find superior market returns for the two portfolios with a greater weight of defense sales. Superior market returns are also found for defense firms with higher R&D and capital expenditure intensity. Finally, these reactions are reinforced or mitigated by other firm-specific characteristics such as size, profitability and institutional ownership.Originality/valueThe effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature.