Corporate sustainability performance and informativeness of earnings

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jagjit Singh Saini ◽  
Mingming Feng ◽  
Jim DeMello
Keyword(s):  
Stock Returns ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Corporate Sustainability ◽  
Ordinary Least Squares ◽  
Mediating Effect ◽  
Price Informativeness ◽  
Content Type ◽  
Sustainability Performance ◽  
Stock Price Informativeness

PurposeWith the growing awareness about the environment and climate, sustainability has gained increased attention of investors. Many investors now factor in the long-term sustainability of successful and responsible companies when making their investment choices. The purpose of this paper is to investigate whether or not the sustainability performance of a company affects the informativeness of its earnings by exploring the mediating effect of sustainability performance on the association between stock returns and earnings changes.Design/methodology/approachUsing a sample of firms for the period 2009–2016 with available sustainability data from TruValue Labs' database, the authors investigate how the sustainability performance of a firm mediates the relationship between stock returns and earnings (changes). The authors use ordinary least squares (OLS) regressions to test their hypotheses.FindingsConsistent with the voluntary disclosure and environmental, social and governance (ESG) performance literature, the authors find that higher sustainability performance improves the stock price informativeness of earnings. The authors find evidence in support of increased earnings response coefficient with increased sustainability performance.Research limitations/implicationsThis study adds to the literature supporting the notion of sustainability investing indicating that sustainability performance of a firm affects the stock price informativeness and predictability of earnings (changes) of the firm.Originality/valueThis study has value for, both, investors and managers regarding the importance of sustainability performance of the firm. Sustainability performance of the firm sends signals to market participants, increasing the informational content of the reported earnings as well as predictability of future earnings.

Estimating defaults in organized security lending markets

2016 ◽  
Vol 24 (3) ◽  
pp. 343-362
Author(s):  
Latif Cem Osken ◽  
Ceylan Onay ◽  
Gözde Unal
Keyword(s):  
Credit Risk ◽  
Stock Returns ◽  
Stock Price ◽  
Price Volatility ◽  
Equity Market ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Content Type ◽  
Central Counterparties ◽  
Risk Determinants

Purpose This paper aims to analyze the dynamics of the security lending process and lending markets to identify the market-wide variables reflecting the characteristics of the stock borrowed and to measure the credit risk arising from lending contracts. Design/methodology/approach Using the data provided by Istanbul Settlement and Custody Bank on the equity lending contracts of Securities Lending and Borrowing Market between 2010 and 2012 and the data provided by Borsa Istanbul on Equity Market transactions for the same timeframe, this paper analyzes whether stock price volatility, stock returns, return per unit amount of risk and relative liquidity of lending market and equity market affect the defaults of lending contracts by using both linear regression and ordinary least squares regression for robustness and proxying the concepts of relative liquidity, volatility and return constructs by more than variable to correlate findings. Findings The results illustrate a statistically significant relationship between volatility and the default state of the lending contracts but fail to establish a connection between default states and stock returns or relative liquidity of markets. Research limitations/implications With the increasing pressure for clearing security lending contracts in central counterparties, it is imperative for both central counterparties and regulators to be able to precisely measure the risk exposure due to security lending transactions. The results gained from a limited set of lending transactions merit further studies to identify non-borrower and non-systemic credit risk determinants. Originality/value This is the first study to analyze the non-borrower and non-systemic credit risk determinants in security lending markets.

The real effects of primary and secondary equity markets on firm performance

2017 ◽  
Vol 13 (4) ◽  
pp. 397-418 ◽  
Author(s):  
Andriansyah Andriansyah
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Operating Performance ◽  
Equity Markets ◽  
Secondary Market ◽  
Price Informativeness ◽  
Content Type ◽  
Real Effects ◽  
Stock Price Informativeness

Purpose The purpose of this paper is to investigate the real effects of primary and secondary equity markets on the post-issue operating performance of initial public offering (IPO) firms. Design/methodology/approach The author utilizes the intended use of proceeds as a proxy variable for the primary market and the investment-to-price sensitivity and the informativeness of stock prices as alternative proxy variables for the secondary market. The compositional data, and non-parametric quantile regressions which are more robust to outliers than standard least square regressions, are employed for Indonesian equity market over the period of 1999-2013. Findings While confirming that firm operating performance can be explained by the firm’s motivation to go public, the author also shows that the operating performance is positively affected by investment-to-price sensitivity and negatively affected by stock price informativeness. The stock prices affect investment decisions by the way that the more liquid a stock is, the more informative its price is, and the more relevant stock prices are in investment decisions. These findings still hold after controlling for ownership structure. Originality/value Departing from the existing literature, the author investigates the role of primary and secondary equity markets for firm performance in an integrated framework because both markets interact closely in reality. The author shows that public listed firms can benefit both from the capital-raising function of the primary market and from the informational role of the stock prices of the secondary market. A measure of stock price informativeness, 1−R2, however, must be understood in the context of thin trading in the sense that the level of liquidity affects the level of stock price informativeness.

Voluntary disclosures and market response to earnings announcements

2018 ◽  
Vol 17 (1) ◽  
pp. 2-17 ◽  
Author(s):  
Guy Dinesh Fernando ◽  
Justin Giboney ◽  
Richard A. Schneible
Keyword(s):  
Information Asymmetry ◽  
Stock Returns ◽  
Information Content ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Trading Volume ◽  
Voluntary Disclosures ◽  
Release Date ◽  
Price Movement ◽  
Content Type

Purpose The aim of this paper is to investigate the impact of voluntary disclosure on information asymmetry between investors and the average information content of subsequent the earnings announcement. Design/methodology/approach The authors use empirical methodology relying on multiple regression analyses. The authors estimate models of trading volume and stock returns around the earnings’ release date as a function of voluntary disclosures, measured using information in the 8-K statements. Findings Voluntary disclosures prior to the earnings release date increase trading volume related to stock returns. In addition, voluntary disclosures also reduce stock price movement around that date. Research limitations/implications The results indicate that voluntary disclosures increase trading volume related to stock returns around the earnings release date. Such increases indicate increased differential precision among investors, demonstrating that voluntary disclosures increase differences in opinion among investors. The reduced stock price movement around the earnings release date also show that voluntary disclosures reduce the information content of earnings. One limitation is that the measure of voluntary disclosures does not consider the variation in the information content of individual disclosures. Practical implications Firms who make voluntary disclosures will need to carefully consider how to structure such releases to minimize asymmetry between investors. Investors should pay greater attention to finding out, and interpreting, voluntary disclosures by firms. Social implications Regulators have previously expressed concern about leveling the playing field between more and less informed investors. The results showing increased differences in information as a result of voluntary disclosures provide valuable insights as regulators debate the balance of mandated and voluntary disclosure. Originality/value This is the first study to investigate the effect of voluntary disclosures on information asymmetry among investors using trading volume and, consequently, the first to find increased differences among investors that result from those voluntary disclosures. The paper is also the first to use a direct measure of voluntary disclosure developed by Cooper et al. to demonstrate the negative relation between voluntary disclosure and the average informativeness of earnings announcements.

Profit warning and its association with stock price informativeness: experimental analysis

2020 ◽  
Vol 21 (4) ◽  
pp. 209-230
Author(s):  
Adel Almasarwah ◽  
Mohammad Almaharmeh ◽  
Ahmed M. Al Omush ◽  
Adel Sarea
Keyword(s):  
Corporate Governance ◽  
Stock Price ◽  
Robust Regression ◽  
Developing Economies ◽  
Specific Information ◽  
Price Informativeness ◽  
Stock Price Synchronicity ◽  
Content Type ◽  
Moderating Variables ◽  
Stock Price Informativeness

Purpose This study investigates the nature of the association between profit warnings and stock price informativeness in the context of Jordan as an emerging country. Design/methodology/approach The authors used a large panel data set that related to stock price synchronicity and profit warnings percentages on the Amman Stock Exchange for the period spanning 2007–2018. Robust regression was used as a parametric test. This enabled us to obtain stronger results that fall in line with our prediction that a profit warning encourages firm investors to collect and process more firm-specific information than common market information. Findings Our findings show a significant positive effect of profit warnings on the amount of firm-specific information incorporated into stock price, which means that the greater the percentage of profit warnings the more likely that more firm-specific information will be incorporated in stock price synchronicity. In addition, corporate governance characteristics (moderating variables) significantly increase the level of the relationship between profit warnings and stock price synchronicity. Practical implications Our study results could be useful to investors, senior managers, and regulators in Jordanian firms, particularly in relation to decisions about enhancing the quality of financial statements. In addition, our results provide new evidence about the consequences of earnings announcements for information content and the informativeness of stock prices. Our methodology and evaluation of profit warnings may also demonstrate useful evidence for future researchers on profit warnings and stock price informativeness in developing economies, especially given that such evidence is scarce in developing economies. Originality/value This research is the first study of its kind on emerging markets, particularly in the Middle East. Moreover, entering the corporate governance variables as moderating variables to the robust regression was found to be more powerful than other regressions.

Does Voluntary Disclosure Improve Stock Price Informativeness?

2008 ◽  
Vol 37 (4) ◽  
pp. 747-768 ◽  
Author(s):  
K. Stephen Haggard ◽  
Xiumin Martin ◽  
Raynolde Pereira
Keyword(s):  
Voluntary Disclosure ◽  
Stock Price ◽  
Price Informativeness ◽  
Stock Price Informativeness

scholarly journals FIRM SPECIFIC VARIATION IN RETURNS AND FUNDAMENTALS IN KOREA STOCK MARKET

2015 ◽  
Vol 60 (04) ◽  
pp. 1550092
Author(s):  
DOOWON LEE ◽  
M KABIR HASSAN ◽  
M ARIFUR RAHMAN
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Stock Price ◽  
Asian Financial Crisis ◽  
Present Value ◽  
Price Informativeness ◽  
Accounting Data ◽  
Specific Variation ◽  
Stock Price Informativeness ◽  
Korean Market

We explore the link between firm-specific variations in stock returns and firm fundamentals in the context of a simple present value framework and test the effect of market openness and firms' industry belonging on stock price informativeness in Korea. Using detailed accounting data and an extensive control for firm-specific characteristics, we find that alternative proxies of cash flow shocks explain a significant part of the variation in firm-specific returns. The effect, however, is not uniform across market sectors. Although greater foreign shareholding in a firm is important to establish a stronger positive linkage between cash flow shocks and stock returns variation prior to the Asian financial crisis, this condition is not necessary after the Korean market was fully opened up to the foreign investors in the post-crisis period.

THE "FIRM-SPECIFIC RETURN VARIATION": A MEASURE OF PRICE INFORMATIVENESS OR INFORMATION ASYMMETRY?

2005 ◽  
Vol 01 (01) ◽  
pp. 0550004
Author(s):  
RADU BURLACU ◽  
PATRICE FONTAINE ◽  
SONIA JIMENEZ-GARCÈS
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Stock Price ◽  
Rational Expectations ◽  
Expected Returns ◽  
Excess Returns ◽  
Price Informativeness ◽  
Common Stocks ◽  
Good Proxy ◽  
Stock Price Informativeness

This paper investigates the relevancy of the "Firm-Specific Return Variation" (FSRV) as a measure of stock price informativeness. For this purpose, we study the link between FSRV and stock excess returns on the American market over the period 1986–2001. After controlling for size effects, we find a negative and highly significant impact of FSRV on stock returns. The link between FSRV and stock excess returns is robust to asset pricing models and does not capture systematic, size or "book-to-market" (BM) effects. Based on rational expectations equilibrium (REE) models considering asymmetrically informed investors, we suggest that FSRV is a good proxy for price informativeness. Common stocks with higher specific return variation have lower information-risk premium, thus lower expected returns.

Non-GAAP measure disclosure and insider trading incentives in high-tech IPO firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bishal BC ◽  
Bo Liu
Keyword(s):  
Stock Returns ◽  
Initial Public Offering ◽  
Insider Trading ◽  
Stock Price ◽  
Positive Association ◽  
Ordinary Least Squares ◽  
High Tech ◽  
Significant Positive Association ◽  
Content Type ◽  
Public Offering

Purpose This paper aims to investigate whether the non-generally accepted accounting principles (GAAP) performance measures (NGMs) disclosure by high-tech initial public offering (IPO) firms signal firms’ efforts to maintain relatively high stock price levels before the expiration of the lock-up period to benefit insider selling. Design/methodology/approach The authors perform ordinary least squares and logit regressions using financial statement data and hand collected data on NGM disclosures for high-tech firms during the IPO process. Findings The authors find that the top executives of high-tech IPO firms with NGM disclosures are significantly more likely to sell and sell significantly more insider shares at the lock-up expiration than those of high-tech IPO firms without NGM disclosures. At the same time, while high-tech NGM firms have stock returns similar to their counterparts without NGMs for the period before the lock-up expiration, their stock returns are substantially lower after insider selling following the lock-up expiration. Practical implications By documenting the negative association between NGM disclosures and post-lockup expiration stock performance, the study highlights managerial deliberate optimism about the firm’s prospects which may not materialize. Hence, investors should take the NGM disclosures with a grain of salt. Originality/value This paper fills a notable void in the non-GAAP reporting literature by documenting a statistically and economically significant positive association between managerial equity trading incentives and NGM disclosures by high-tech IPO firms.

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