Information Dispersion across Employees and Stock Returns

2020 ◽  
Author(s):  
Ashwini Agrawal ◽  
Isaac Hacamo ◽  
Zhongchen Hu
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Accounting Data ◽  
Earnings Expectations ◽  
Employment Dynamics ◽  
Public Company ◽  
Corporate Earnings ◽  
Abnormal Stock Returns ◽  
Labor Market Decisions ◽  
The Individual

Abstract Rank-and-file employees are becoming increasingly critical for many firms, yet we know little about how their employment dynamics matter for stock prices. We analyze new data from the individual CV’s of public company employees and find that rank-and-file labor flows can be used to predict abnormal stock returns. Accounting data and survey evidence indicate that workers’ labor market decisions reflect information about future corporate earnings. Investors, however, do not appear to fully incorporate this information into their earnings expectations. The findings support the hypothesis that rank-and-file employees’ entry and exit decisions reveal valuable insights into their employers’ future stock performance.

Studying the Effect of Changing the Managing Director on the Abnormal Returns of Shares of Companies Listed on the Iraqi Stock Exchange

2021 ◽  
Vol 39 (11) ◽  
Author(s):  
Hussein Hasan ◽  
Hudaa Nadhim Khalbas ◽  
Farqad Mohammed Bakr AL Saadi
Keyword(s):  
Stock Returns ◽  
Significant Relationship ◽  
Stock Prices ◽  
Market Reaction ◽  
Stock Exchange ◽  
Hypothesis Test ◽  
Abnormal Returns ◽  
The Other ◽  
Other Hand ◽  
Abnormal Stock Returns

The aim of this research is to study the market reaction to the change of the managing director and how this change affects the abnormal returns of the shares. The research is based on the information published by the companies listed on the Iraq Stock Exchange, and 35 companies were selected for the period from 2015 to 2019. The results of the hypothesis test for this study show that there is a negative and significant relationship between the change of the managing director and abnormal stock returns. On the other hand, investors undervalue stock prices when changing CEOs. As a result, the stock returns are less than expected.

scholarly journals Irrelevance of inflation: The Dow stocks

2020 ◽  
Vol 9 (1) ◽  
pp. 45
Author(s):  
Samih Antoine Azar
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Price Index ◽  
Inflation Rate ◽  
Long Run ◽  
Price Indexes ◽  
One To One ◽  
The Individual ◽  
Stock Indexes ◽  
Real Assets

The irrelevance of inflation is a proposition, inherited from corporate finance, which states that inflation is irrelevant for the valuation of nominal and real stock prices. In other terms, Net Present Values (NPVs) and stock returns are independent of the inflation rate.  The issue at stake is both theoretical and empirical, although the first came much before the latter. In the empirical realm, stock returns are found to be statistically negatively related to inflation. However, and theoretically, the classical school predicted that they should be related positively one-to-one. Moreover long run analysis, that came later, found that stock prices are positively related to price indexes. This stems from the fact that stocks are claims upon real assets, and, therefore, should be a hedge against inflation with the same one-to-one relation. This paper differs by subjecting all these hypotheses to the individual stocks included in the Dow Jones Industrial Index, and not to returns calculated from stock indexes, which is the usage. The empirical results in this paper support strongly the irrelevance of inflation.  This is true whatever the price index, whatever the econometric procedure, whatever the industry to which the stock belongs, and whatever the specification of the model.  Hence inflation is neither negatively nor positively related to stock returns, whether nominal or real.

The cost of presidential impeachment to politically connected firms

2019 ◽  
Vol 21 (2) ◽  
pp. 109-121
Author(s):  
Ha Na Lee ◽  
B. K. Song
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Price ◽  
Constitutional Court ◽  
Korean History ◽  
South Korean ◽  
Price Data ◽  
Political Events ◽  
Abnormal Stock Returns ◽  
The Cost

AbstractThis study examines the ways political events can affect the stock prices of politically connected firms by studying one of the biggest corruption scandals in modern South Korean history, which led to the first-ever impeachment of a sitting president. We analyzed the stock returns of firms that donated money to foundations allegedly controlled by the president's confidante. We found that the abnormal stock returns of politically connected firms decreased when the president was removed from office. Using tick-by-tick stock price data, we were able to pinpoint the exact moments when the stock prices of firms that donated money fluctuated, as the president's fate was determined by the justices of the Constitutional Court.

The Effect of Shareholder-Level Dividend Taxes on Stock Prices: Evidence from the Revenue Reconciliation Act of 1993

2002 ◽  
Vol 77 (4) ◽  
pp. 933-947 ◽  
Author(s):  
Benjamin C. Ayers ◽  
C. Bryan Cloyd ◽  
John R. Robinson
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Income Tax ◽  
Stock Price ◽  
Dividend Policy ◽  
Dividend Yield ◽  
Tax Rate ◽  
Tax Status ◽  
The Individual ◽  
Dividend Taxes

We investigate the effect of an increase in the individual (shareholder-level) income tax rate on share values. We regress cumulative daily abnormal stock returns surrounding the passage of the Revenue Reconciliation Act of 1993 on firm dividend yield, tax status of the investor as represented by level of institutional ownership, the interaction of these two variables, and control variables. Consistent with our expectations, we find that (1) the higher the firm's dividend yield, the more negative the firm's stock price reaction to the increase in the individual income tax rate (i.e., the dividend tax rate) enacted in the Revenue Reconciliation Act of 1993, and (2) institutional holdings mitigate this negative reaction. Our results suggest that both the dividend policy of the firm and the tax status of the marginal investor influence the extent to which dividend taxes are reflected in share values. Our evidence is consistent with the traditional view that firm dividend policy influences the extent to which tax rate changes affect share values.

scholarly journals Use Of Earnings Information For Stock Pricing In Different Market Cycles: The Effect Of Discretionary Accruals

2011 ◽  
Vol 7 (5) ◽  
Author(s):  
Alireza Daneshfar ◽  
Mohammad J. Saei
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Discretionary Accruals ◽  
Ratio Analysis ◽  
Test Results ◽  
Font Size ◽  
True Nature ◽  
Earnings Information ◽  
Abnormal Stock Returns

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study examines the association between stock prices and discretionary accruals in different stock market cycles and presents evidence about the discrepancy in prior research that investors were able to identify earnings management in some cases, but not in some other cases. We argue that investors&rsquo; reaction to the true nature of EPS changes may be different in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycle, and are more critical in neutral and pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in a neutral or pessimistic cycle than in an optimistic cycle. Using the U.S. quarterly data from July 01, 1997 to June 29, 2001, three market cycles were identified: optimistic, neutral and pessimistic. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The finding suggests that a more delegate and technical analysis of EPS changes is required when earnings information is used for stock pricing. It also suggests that a consideration of market cycle effect on investors&rsquo; use of EPS could improve the earnings-based ratio analysis. The findings propose that researchers interested in investigating the association between stock prices and earnings management should control for the effect of the market cycle during which their samples are drawn. </span></span></p>

DIVIDEND ANNOUNCEMENTS AND THE ABNORMAL STOCK RETURNS FOR THE EVENT FIRM AND ITS RIVALS

2012 ◽  
Vol 01 (08) ◽  
pp. 72-76
Author(s):  
Muhammad Aamir ◽  
Syed Zullfiqar Ali Shah
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Oil And Gas ◽  
Positive Impact ◽  
Theoretical Background ◽  
Study Data ◽  
Share Prices ◽  
Dividend Announcements ◽  
Abnormal Stock Returns ◽  
Rival Firms

Impact of dividend announcement on stock prices is pronounced in various studies conducted by various researchers. Event study has been conducted in this paper on 26 announcements and the firms were belonging to cement and oil and gas sector of Pakistan. In this study data span of 2004-2008 has been covered. Impact of dividend announcement on stock prices of event and rival firms has been analysed and it has been found that dividend announcement depicts positive impact on share prices of the companies at the time of announcement as well as immediately after such announcements. Performance of event firms has been evaluated in comparison with its rival firms in this study in order to give better understanding of dividend announcement effect on the financial health of the companies. Overall, our results robust the findings of earlier research and as per theoretical background of the study. Our conclusion explains the significance of t-statistics values during this study.

Customer-Base Concentration: Implications for Firm Performance and Capital Markets

2011 ◽  
Vol 87 (2) ◽  
pp. 363-392 ◽  
Author(s):  
Panos N. Patatoukas
Keyword(s):  
Firm Performance ◽  
Stock Returns ◽  
Stock Prices ◽  
Data Availability ◽  
Rates Of Return ◽  
Customer Base ◽  
Conventional View ◽  
Supply Chain Relationships ◽  
Abnormal Stock Returns ◽  
Stock Market Valuation

ABSTRACT This study investigates whether and how customer-base concentration affects supplier firm fundamentals and stock market valuation. I compile a comprehensive sample of supply chain relationships and develop a measure (CC) to capture the extent to which a supplier's customer base is concentrated. In contrast to the conventional view of customer-base concentration as an impediment to supplier firm performance, I document a positive contemporaneous association between CC and accounting rates of return, suggesting that efficiencies accrue to suppliers with concentrated customer bases. Consistent with a cause-and-effect link between customer-base concentration and supplier firm performance, analysis of intertemporal changes demonstrates that CC increases predict efficiency gains in the form of reduced operating expenses per dollar of sales and enhanced asset utilization. Using stock returns tests, I find that investors underreact to the implications of changes in customer-base concentration for future firm fundamentals when setting stock prices. A trading strategy that exploits investors' underreaction yields abnormal stock returns over the 30-year period studied. JEL Classifications: M41; L25; G14. Data Availability: Data are available from the sources indicated in the text.

Discussion—Innovation, Future Earnings, and Market Efficiency

2005 ◽  
Vol 20 (4) ◽  
pp. 419-422 ◽  
Author(s):  
Chandra Seethamraju
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Citation Impact ◽  
Earnings Forecasts ◽  
Patent Citation ◽  
Time Lags ◽  
Future Earnings ◽  
Market Participants ◽  
Technological Advances ◽  
Abnormal Stock Returns

This study considers patent citation impact as a proxy for a leading indicator of technology firms' innovation capabilities. The author examines whether patent citation impact is associated with future earnings and whether this association is appropriately reflected in stock prices and analysts' earnings forecasts of patent-rich companies. The author reports results which indicate that change of patent citation impact is positively associated with future earnings up to five years in the future, particularly in the computer, electronics, and medical equipment industries. These are industries with relatively short time lags between technological advances and profit realization. The author also reports that investors and analysts do not seem to fully incorporate the implication of enhanced innovation capabilities for future earnings into stock prices and earnings forecasts. Based on this information, the paper develops a trading strategy that generates future abnormal stock returns. In my view, this paper asks an important question. If a researcher could come up with an appropriate leading measure of innovation, then examining the reliability of that measure through its association with future benefits, and whether the implications of the measure are understood by market participants, is an interesting exercise. In my discussion, I will focus on (a) some of the issues with the patent citation index (the measure of innovation capabilities), (b) problems with the databases used to construct this measure which suggest that the results should be interpreted with caution, and (c) some additional comments on the mispricing and portfolio tests.

scholarly journals Earnings Management Effect In Different Stock Market Cycles

2011 ◽  
Vol 7 (8) ◽  
Author(s):  
Alireza Daneshfar ◽  
Daniel Zeghal ◽  
Mohammad J. Saei
Keyword(s):  
Stock Market ◽  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Discretionary Accruals ◽  
Test Results ◽  
Font Size ◽  
True Nature ◽  
Abnormal Stock Returns ◽  
Management Effect

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study examines the association between stock prices and discretionary accruals in different stock market cycles. The study presents evidence for a discrepancy in prior research and shows that investors are able to identify earnings management only in some cases. We argue that investors&rsquo; reaction to the true nature of EPS varies in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycles, and are more critical in neutral or pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in the neutral or pessimistic cycle than in the optimistic cycle. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The findings suggest that researchers investigating the association between stock prices and earnings management should control for the type of the market cycle from which their samples are drawn. </span></span></p>

Market Reactions to Announcements of Valuation Losses on Conversion Rights Embedded in Convertible Instruments

2020 ◽  
Vol 28 (1) ◽  
pp. 35-61
Author(s):  
Su Jeong Lee ◽  
Young Jun Kim ◽  
Eugenia Y. Lee ◽  
Ga-young Choi
Keyword(s):  
Stock Returns ◽  
Financial Reporting ◽  
Stock Prices ◽  
Stock Price ◽  
Fair Value ◽  
Convertible Bonds ◽  
Market Reactions ◽  
Announcement Date ◽  
Abnormal Stock Returns ◽  
Trading Volumes

Convertible instruments are financial instruments embedded with conversion rights such as convertible bonds or convertible preferred stocks. Under the Korean International Financial Reporting Standards (K-IFRS), the embedded conversion rights with certain conditions (i.e., a refixing clause) are recognized as derivative liabilities and are recognized at fair value in issuer’s financial statements. Since the value of convertible rights varies with the underlying stock value, an increase in the issuers’ stock price causes the issuers of convertible instruments to announce large derivative valuation losses. Using disclosures under the title of ‘Loss from Derivatives Trading’ from the KOREA EXCHANGE (KRX) during January 2016 through December 2019, this study examines market reactions to the disclosure of valuation losses on conversion rights embedded in convertible instruments. We find the following results. First, abnormal stock returns on the loss announcement date are significantly negative. Second, abnormal trading volumes peak on the loss announcement date. Third, abnormal stock returns persist in the long-term. Collectively, our findings suggest that investors perceive the loss disclosures as negative news, but fail to impound the information into issuer’s stock prices effectively. This study emphasizes the importance of education on convertible instruments and improvement in the disclosure requirements on valuation losses of conversion rights embedded in convertible instruments by providing evidence that investors face difficulty in understanding the related disclosures.

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