Stock Return Performance Research Articles

Do CEOs Identified as Value Investors Outperform Those Who Are Not?

The aim of this study is to examine whether good asset allocation by a CEO leads to superior stock returns and, if so, how one might be able to identify CEOs that are good asset allocators. Employing US data from May 2001 to April 2019, we find that CEOs that invest the company’s cash flows according to a value-investing style seem to outperform companies that do not. We find that high goodwill to assets and high operating margin (good asset allocator) companies outperform companies with high or low goodwill to assets and low operating margin (poor asset allocator) companies. The findings are corroborated with out-of-sample (May 2019–April 2023) robustness tests. When buying other businesses, value investor CEOs ensure that their consolidated operating margins remain high, as opposed to other firms managed by poor asset allocator CEOs who buy businesses that bring down operating margins, either because they overpay or due to an inability to materialize expected synergies. Using both summary statistics and regression analysis, the findings of this study help us identify companies that allocate assets like value investors and enable us to anticipate future stock performance. For example, if a company, on average, has a goodwill/assets ratio of 41.03%, and an operating margin of 21.38%, it is likely this firm would be at the top quartile in terms of stock return performance over at least the next three years. At the same time, if a firm has a low average goodwill/assets ratio (i.e., 1.95%), its operating margins, on average, should be 24.46%, if it wants to achieve a similar performance as that of firms with high goodwill/assets. Moreover, the future stock return predictability of high (low) goodwill/assets and high (low) operating margin firms, found in this study, can help an investor develop trading strategies that can lead to superior stock price performance by effectively taking long positions in (shorting) firms that are (not) managed by value investor CEOs. Finally, the paper’s findings can also help investors in another way. For example, investors tend to be skeptical about companies with high goodwill/assets. The rule of thumb is to beware of companies carrying goodwill on their balance sheets that is more than 25% of assets. Based on our findings, this should not be a problem as long as the company’s operating margin has remained high and is rising.

Perbedaan Nilai Pasar Dan Kinerja Keuangan Perbankan Pada Saat Sebelum Dan Sesudah Covid 19

This research aims to analyze differences in market value and financial performance before and after covid 19, as well as their impact on stock returns. The research applies the associative method. the sample was determined using a saturated sampling method. research data uses secondary data in the form of financial reports. The data is presented in the form of financial reports and annual reports for banks that use basel III and IV between 2015 and 2022, sourced from the idx.co.id website. as independent variables, financial difficulties, credit risk, market risk, and capital adequacy ratio serve as proxies for financial performance. stock returns function as the dependent variable. multiple linear regression and paired sample t test were used to test the data. this research found that it was proven that there were differences in capital adequacy ratios and financial distress before and after covid 19, but the market performance of credit risk, market risk and stock returns was proven to be no different before and after covid 19. the research results also found: (1) the capital adequacy ratio has an impact on stock returns; (2) credit risk has no impact on stock returns; (3) market risk has an impact on stock returns; and (4) financial distress indicators have an impact on stock returns at banks included in book 3 banks and book 4 banks that implement basel in indonesia. Keywords: Capital Adequacy Ratio, Credit Risk, Market Risk, Financial Distress, Stock Returns, Basel Jel Classification: G21

The Effects of Energy Prices on Oil-Gas Sectoral Stock Returns for BRIC Countries: Evidence from Space State Models

This paper examines the effects of oil and natural gas prices on the oil and gas sectors of the BRIC countries (Brazil, Russia, India, and China) over the period over from 20013 to 2022. Unlike previous studies, it employs a time-varying capital asset pricing model based on the estimation of state-space mode. In brief, the findings highlight significant changes in the asset-pricing model parameters across all countries, indicating the limitations of using time-invariant estimates. Specifically, Brazil shows the highest volatility in oil price risk, followed by Russia, both being oil-exporting countries, while market beta values remain relatively stable. Time-varying estimates further suggest that natural gas parameters are relatively lower and less significant than those of oil prices. The Russian-Ukrainian conflict's energy crisis adversely affects the performance of oil and gas sectoral stock returns. This war has had a negative and significant impact on China's oil-gas stock return.

Revisiting the Nexus between Turkish Tourism Index Returns and Economic Policy Uncertainty: Partial Wavelet Coherence Analysis

This study reevaluates the well-documented negative relationship between the Turkish tourism index stock returns and economic policy uncertainty (EPU) indices using a wide range of EPU indices that span from 1997 to 2003. The aim of the paper is to find out whether EPU indices a have particular importance for the tourism companies’ stock returns or they end up with the same consequences regardless of the sector. To this end, Partial Wavelet Coherence analysis is conducted using the BIST 100 and the real effective exchange rate indices as conditioning variables. Results show that the negative relationship between the EPU indices and Turkish tourism index returns tends to disappear when controlled for the BIST 100 index returns. EPUs are shown to have no particular effect on the excess stock return performance of Turkish tourism companies. The policy uncertainties in Europe (particularly in France and, to a lesser extent in Germany) become effective only after controlling also for the changes in real effective exchange rates.

Firms’ value impact of C2M mode empowered by big data based on event study

PurposeThis study aims to analyze and discuss whether and how consumer-to-manufacturer (C2M) mode empowered by e-commerce retail platforms’ big data affects the stock returns of firms in supply chains.Design/methodology/approachThis study selects 195 companies affected by four C2M events as samples and empirically analyzes the impact mechanisms of C2M mode on supply chain firms’ stock returns by event study.FindingsThis paper finds that C2M announcements own a positive impact on the stock returns of supply chain firms. Further, the results show that the business and financial characteristics play a significant impact on the relationship between the C2M mode and firm stock return performance. For example, C2M mode leads to huge stock returns when firms cooperate with the platforms related to their business content. In addition, the business scope can strengthen the positive promotion of C2M mode in stock returns, while business concentration weakens the positive promotion of C2M mode in stock returns.Originality/valueThe results found in this paper can provide practical guidance for the firms in supply chains to further apply C2M mode from the business characteristics and financial performance view.

Kinerja saham akselerasi dalam isu inflasi: Kasus sektor konsumen non-primer

The consumer cyclical sector is a sector that has a close relationship with changes in economic conditions. In February 2023, inflation was at its highest point and was at its lowest point in May 2023. Based on this phenomenon, this study aims to determine the condition of stock returns in the issue of national inflation. This study finds that the optimal performance of stock returns of the consumer cyclical sector occurs in April 2023. This study finds that the highest volatility occurs in May 2023 while the lowest volatility occurs in April 2023. This condition implies that the difference in stock returns occurs between the points highest with a relatively low point of inflation.

From fiction to fact: the growing role of generative AI in business and finance

ABSTRACT Generative Artificial Intelligence (AI), such as ChatGPT by OpenAI, has revolutionized the business world, with benefits including improved accessibility, efficiency, and cost reduction. This article reviews recent developments of generative AI in business and finance, summarizes its practical applications, provides examples of the latest generative AI tools, and demonstrates that generative AI can revolutionize data analysis in industry and academia. To test the ability of generative AI to support decision-making in financial markets, we use the ChatGPT to capture corporate sentiments towards environmental policy by inputting text extracted from corporate financial statements. Our results demonstrate that the sentiment scores generated by ChatGPT can predict firms’ risk-management capabilities and stock return performance. This study also highlights the potential challenges and limitations associated with generative AI. Finally, we propose several questions for future research at the intersection of generative AI with business and finance.

Does ESG investing pay‐off? An analysis of the Eurozone area before and during the Covid‐19 pandemic

AbstractWe examine whether the stock return performance of 620 Eurozone companies based on their environmental, social and governance (ESG) ratings both before and during the Covid‐19 pandemic on both a nominal and risk adjusted basis. We also look at how country level governance indicators interact with our samples of ESGHigh and ESGLow companies to affect both nominal and risk adjusted investment returns. We use both panel data and cross‐sectional regressions as well as the difference‐in‐differences approach to derive the empirical results. We generally find some evidence that highly rated ESG firms performed slightly worse than lower rated ESG both overall and during the pandemic. However, once we control for governance at the country level, we find that in high governance scoring countries ESGHigh companies perform better than ESGLow companies. Finally, when we examine the relative performance of EU companies compared to companies in economies less impacted by the Covid‐19 pandemic, namely South Korea and Australia, we find that during the pandemic, the South Korean and Australian companies performed much better than their counterparts in Europe.

Risiko sistematis emiten pangan dalam isu krisis pangan

The issue of the global food crisis since the COVID-19 pandemic is still rife in the Indonesian capital market until early 2023. The purpose of this study is to analyze systematic risk and stock return performance. The sample for this study is stocks in the food sub-sector in Indonesia with an observation period from 1 January 2023 to 30 April 2023. This study finds that the performance of returns on risk is still not optimal for all samples where the average stock returns and systematic risk are still low. Individually, GZCO is a high-risk and return asset and has optimal stock performance.

Can machine learning identify sector-level financial ratios that predict sector returns?

Academics and practitioners use fundamental ratios to evaluate an industry's financial and operating performance. WRDS has large firm-level and sector/industry-level databases that provide over 70 financial ratios that are applied in finance classes to compare and assess relative financial performance. However, there has been a lack of sophisticated econometric methods assessing these ratios' importance in predicting sector-level stock return performance. Using Elastic Net methods, we identify financial ratios that significantly forecast out-of-sample sector stock returns and find that these predictive ratios vary across sectors. We form long and long-short portfolios that consistently outperform the market over-time. Long portfolios generate significant alpha and large utility gains, boost the Sharpe and Sortino ratios, and a cumulative investment portfolio exceeds the market benchmark by five times. Long-short portfolios generate Fama-French 4-factor and 6-factor alphas between 4–9% and cumulative investment gains from six to fourteen times. Our research establishes that machine learning can identify financial ratios that significantly predict sector returns and generate profitable portfolio allocation.

In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO

AbstractIn this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.

Mergers and acquisitions: does performance depend on managerial ability?

Companies in difficult financial situations may seek to survive through mergers and acquisitions. Managers must be able to use company resources efficiently to maintain and improve competitiveness and sustainable advantages. Managers' ability to make strategic decisions may determine whether a merger and acquisition is successful. This study aims to reveal the role of the acquirer's managerial ability in mergers and acquisitions based on short- and long-term performance as well as the type of M&A. Two metrics are used to assess short- and long-term performance: the market-to-book ratio (MTBR) as an indicator of operating performance and the buy-and-hold abnormal return (BHAR) as an indicator of stock return performance. The research sample consists of 153 M&A cases conducted by companies registered with the Business Competition Supervisory Commission in Indonesia between 2010 and 2017, and the performance till 2020. We used regression and difference analysis to analyze the data. We find that managerial ability has a positive impact on MTBR operating and BHAR stock performance. This result confirms that the higher ability of the acquirer's manager will ensure a successful M&A in the long run. Investors and potential investors might consider managerial ability in choosing investments in companies after an M&A. This study contributes to the M&A literature by examining the role of MA in the short- and long-term performance of acquiring firms following M&As in Indonesia.

Asset Pricing Puzzle: New Evidence of Fama-French Five-Factors in Emerging Market Perspectives

Abstract The asset pricing theory introduced by Fama and French (2015) documents five systematic common risk factors for equity valuation, such as: (a) market beta, (b) firm size, (c) firm value, (d) profitability and (e) investment strategy. However, corporate finance literature does not provide us with a particularly robust check if the FF5 model is equally exposed to estimate equity returns in an emerging market. Hence, based on Fama and Macbeth (1973) as well as Fama and French (1993, 2015, 2020), this paper applies multivariate regression (time series & cross-sectional) analysis for the robust test of common risk factors and risk premia respectively in an emerging market context, and finally validates that all of the systematic risk factors are significant except firm profitability and investment strategy. We found that the distinguishing semi-strong level of market efficiency influences the explanatory power of the underlying risk exposure for stock return performance differently in an emerging market. The finding could be important in estimating equity fair pricing that is yet to be examined for an emerging market. Therefore, with the reconfirmedthree significant common risk factors, the market practitioners, policy makers, financial analysts, and, above all, investors can estimate equity value appropriately, and thereby take optimal financial and investment decisions.

The role of trust, investor sentiment, and uncertainty on bank stock return performance: Evidence from the MENA region

This paper aimed to understand the effect of investor sentiment, trust, and uncertainty on bank stock returns. Also, the research highlighted the effects of the interaction between uncertainty and trust. The sample covered 173 banks in the Middle East and North Africa region (MENA) and used data between 2010 and 2020. This study employed the Two-steps system Generalized Method of Moments estimator. The baseline findings of the MENA region revealed that market sentiment, uncertainty, and trust had positive effect on bank stock returns, while individual sentiment negatively influenced bank stock returns. Similarly, Gulf Cooperation Council Region's (GCC) shows almost same results as MENA region except individual sentiment was found positive and significant. The MENA and the GCC regions' interaction variables results found a negative effect on bank stock returns. While monarchy countries show asymmetry effects and found positive link between interaction of trust and uncertainty on the bank stock returns. Overall, the banking sectors of the MENA region were sensitive to investor sentiment, uncertainty, and trust. The limitation of this paper was the lack of weekly, monthly, or quarterly availability of data for all variables.

Decarbonization strategy of businesses, stock return performance and investment styles: a systematic review

PurposeThis paper aims to provide a systematic review of the research focusing on the decarbonization strategy of businesses, stock return performance, and investment styles.Design/methodology/approachThe paper utilizes bibliometric methods and content analysis to present a broad overview of the research on the association between decarbonization strategies in businesses and financial performance in the last few decades. The final dataset contains 272 records published between 2001 and early 2021, available in the Web of Science (WoS) database.FindingsThe authors find a relatively small number of publications before 2010 and the research focus increases only after 2016. There exists limited knowledge on the links between climate change strategies and firm performance till date. The top management journals have also failed to respond to the importance of decarbonization strategies in firms and their relationship with stock returns and investment styles. Furthermore, there is a limited indication of publications from ecology and the environmental sciences, in general, being included or cited by the business and management research studies, thus highlighting weak network linkages between the two fields.Research limitations/implicationsThe study contributes to the literature on decarbonization strategies of businesses, and the strategies' relation with firm performance by consolidating the extant research and thus finding the research gaps and research areas that require further investigation.Practical implicationsFor the industry professionals, this research provides a comprehensive repository of articles on incorporating decarbonization strategies in industry professionals' decisions on improving firm performance.Originality/valueThis paper examines the history and development of themes, related to firms' emission mitigation strategies, firm performance and investment styles, across the journal articles in the WoS database published from 2001 to early 2021. In addition, the authors highlight research directions and the need for research on sustainable strategies in businesses, stock return, and investment styles.

Effect of acquisitions on target firms' stakeholder welfare: Evidence from corporate social responsibility

AbstractThis study examines whether acquirers support targets' superior corporate social responsibility (CSR) and/or remedy targets' greater CSR problems during the post‐merger integration process using multinomial logit and panel regression models. Furthermore, the study examines the subsequent impact of the acquirers' decision regarding target stakeholder welfare on acquisition performance based on the post‐announcement performance of stock returns. Consequently, we find that acquirers generally do not adopt the superior CSR performance of target firms but instead support their better environmental and product CSR. However, the acquirers do not remedy any of the target's greater CSR problems. This study also reveals that the acquirers supporting targets' superior overall CSR have higher post‐announcement stock returns than others. Meanwhile, post‐announcement stock returns are lower when acquirers fail to fix the targets' greater CSR problems. As this study extends findings from recent scholarship reporting a positive association between CSR and acquisition performance, it sheds light on the importance of stakeholders' welfare in mergers and acquisitions.

The Effect of Firm Profitability on Expected Stock Return in ASEAN Stock Market

This research discusses and analyzes the company's profitability related to the company's stock return performance Profitability of the firm is related to the firm's performance of stock return. This study uses time-series data with a total sample of 1,010 firms from five countries in ASEAN (Indonesia, Thailand, Malaysia, Philippines, and Vietnam) from January 2010 to December 2019. Fama-French 3 factor model based on two different profitability showed that profitability positively affects the stock return in ASEAN markets. Fama-MacBeth's (1973) regression confirms that firm profitability scaled by operating profit-to-equity or operating profit-to-assets positively influences expected stock returns in the ASEAN market.DOI: 10.26905/jkdp.v25i3.5598

Assessing the financial performance of airlines in the Asia-Pacific region

In recent years, the aviation industry in the Asia-Pacific region has experienced rapid growth. Despite facing thin and volatile profit margins, the region’s airlines continue to expand their capacity by using high financial leverage, raising concerns of whether they are utilizing such financial leverage effectively and how it affects their stock performance. Using the global Malmquist productivity index and the conditional value-at-risk measure, this study investigates the financial performance of 22 Asia-Pacific-based airlines during 2016–2019. The empirical results reveal that only three full-service airlines were able to maintain continued improvement in financial efficiency during the sample period. The excessive use of financial leverage among low-cost carriers is documented. To assess the sources of financial inefficiency, this study decomposed the global Malmquist productivity index into two components: efficiency change and technical change. The results show that while there was a trend toward efficiency catch-up among the carriers, the number of airlines that demonstrated sufficient technical change declined significantly, indicating the need to implement technological innovation to deliver better financial outcomes. Regarding the airline’s stock return performance, airlines that achieved continuously superior performance in deploying financial resources also saw the lowest downside risk in their stock returns, reinforcing the importance of devoting more attention to indebtedness and the effectiveness with which financial resources are used. The findings of this study offer suggestions to airlines in managing their capital structure and enhancing their financial stability.

Pengaruh Gcg Terhadap Corporate Value Serta Stock Return Dan Fiper Sebagai Moderasi

The purpose of this study was to analyze the application of good corporate governance to corporate value with stock return and financial performance as a moderating variable. The sample in this study amounted to 177 companies from 93 companies listed on the Indonesia Stock Exchange for the 2017-2019 period, using purposive sampling techniques and processed using the E-Views 9. Program. The results showed that good corporate governance was positive and significant to the company's value. Hypothesis testing results indicate that stock returns are not able to moderate the effect of good corporate governance on firm value, while financial performance is able to moderate the effect of good corporate governance on firm value.

Accounting conservatism and firm performance during the COVID‐19 pandemic

We explore whether firms with more conditionally conservative accounting practices have higher stock returns than other firms during the Covid‐19 outbreak. We find evidence that Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges applying more conditionally conservative reporting have lower declines in stock return performance during the Covid‐19 outbreak relative to other firms. We also find that the beneficial role of conditional conservatism is higher when firms have greater information asymmetry following the Covid‐19 pandemic. Our results are robust to various model specifications with four different measures of conservatism and an alternative return window.