Abnormal returns using accounting information within a value portfolio

2017 ◽  
Vol 30 (01) ◽  
pp. 73-88
Author(s):  
Pradip Banerjee ◽  
Soumya G. Deb
Keyword(s):  
Information Disclosure ◽  
Accounting Information ◽  
Abnormal Returns ◽  
Poor Performance ◽  
Equity Market ◽  
Content Type ◽  
Value Stocks ◽  
A Value ◽  
Analysis Strategy ◽  
Value Strategy

Purpose This paper investigates whether a simple accounting information-based fundamental analysis strategy could identify winners from losers within a portfolio of high book-to-market (value) stocks, over the last decade in the Indian equity market, where historically, information disclosure and transparency levels have been on the lower side. Design/methodology/approach Using a sample of ‘value’ firms, the authors formulate an ‘F-score’ for each firm as the sum of binary signals (favourable and unfavourable), with respect to nine key variables. The authors then form ten equal size F-score portfolios within the value band for each year, and track the performance of robust high F-score firms vis-à-vis that of weaker low F-score firms. Findings The study highlights that the historical success of a value strategy, in general, relies on the strong performance of a few firms while ‘tolerating the poor performance of many deteriorating companies’ within the broad value group and shows that firms with strong fundamentals within the value group outperform their less robust counterparts, based on absolute as well as risk adjusted measures. Practical implications The results of the study show that strong performers can indeed be distinguished from underperformers within the broad category of value stocks. This can have significant implications for investors at large in the Indian equity market. Originality/value The study suggests an approach to identify potential winners within a broad ‘value’ portfolio using an array of accounting information, even in a relatively less transparent Indian equity market.

Ownership governance, institutional pressures and circular economy accounting information disclosure

2014 ◽  
Vol 8 (3) ◽  
pp. 487-501 ◽  
Author(s):  
PuCha Wang ◽  
Fei Che ◽  
ShanShan Fan ◽  
Chen Gu
Keyword(s):  
Corporate Governance ◽  
Institutional Theory ◽  
Circular Economy ◽  
Information Disclosure ◽  
Accounting Information ◽  
Listed Companies ◽  
Institutional Pressures ◽  
Disclosure Quality ◽  
Content Type ◽  
The Relationship

Purpose – This paper aims to explore the determinants of circular economy accounting information disclosure quality, and also to make empirical analysis on the relationship between circular economy accounting information disclosure quality and corporate ownership governance and institutional pressures according to institutional theory and corporate governance theory. Finally, this paper provides some corresponding suggestions for heightening circular economy accounting information disclosure quality. Design/methodology/approach – This paper constructs enterprise circular economy accounting information disclosure model with Chinese characteristics. First, it takes disclosure index method to measure enterprise circular economy accounting information disclosure quality, followed by the hypotheses of this study. Then, this study employs a statistical analysis technique to empirically study the relationship between enterprise circular economy accounting information disclosure quality and ownership governance and institutional pressures, to study the ways to heighten enterprise circular economy accounting information disclosure quality in Chinese background. Findings – Ownership governance and institutional pressures mainly determine quality of circular economy accounting information disclosure. This paper draws the following conclusions: Chinese listed companies have heightened their circular economy accounting information disclosure quality due to ownership concentration, shareholding of institutional investors, mandatory disclosure, capital structure and assets size. However, the circular economy accounting information disclosure quality has low correlation with the profitability and the location of listed companies. Originality/value – Both in China and the West, few scholars or experts adopt empirical research to study the determinants of circular economy accounting information disclosure quality in an institutional theory and corporate governance theory perspective based on China’s supervisory system background. This paper makes a thorough analysis of the factors that affect listed companies’ circular economy accounting information disclosure quality, and provides some corresponding suggestions relevant for heightening circular economy accounting information disclosure quality.

Bank stockholders’ vs bank bondholders’ market discipline during crisis time: an investigation based on supervisory stress test information disclosure

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moustapha Daouda Dala
Keyword(s):  
Financial Distress ◽  
Information Disclosure ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Stress Test ◽  
Abnormal Returns ◽  
Market Discipline ◽  
Content Type ◽  
European Sovereign Debt Crisis ◽  
European Banking

Purpose This paper aims to investigate how stockholders and bondholders react to the information disclosed on the financial markets during crisis periods. This paper considers the 2011 European Banking Authority’s stress test as it disclosed detailed information about banks. Design/methodology/approach It was conducted during the European sovereign debt crisis, and this paper uses an event study methodology. This paper analyzes the average cumulative abnormal returns for different subsamples of banks. This paper compares the reactions of stockholders and bondholders to the stress test by considering pre-results announcements (signal generating process) to the publication of the results on the disclosure date, using quantitative data for each individual bank that participated in the stress test (the signal provided to the financial market). Findings This paper finds that stockholders’ reaction is more sensitive to idiosyncratic components of the disclosed information, whereas bondholders are more influenced by systematic risk. A deeper investigation shows that subordinated bondholders tend to behave quite similarly to stockholders. This specific reaction of stockholders during financial distress may make them more likely than bondholders to impose market discipline during troubled periods. Originality/value This paper brings several new insights to the behavior of stock and bond holders during times of financial distress and makes recommendations to regulators that may serve to refine communication to markets to reduce the shock of negative news.

Governance role of media coverage: from the view of accounting information value relevance and market value about share pledge firms in China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Li Gao ◽  
Jinnan Song ◽  
Jianxiao Guo ◽  
Jiajuan Liang
Keyword(s):  
Media Coverage ◽  
Information Disclosure ◽  
Value Relevance ◽  
Accounting Information ◽  
Market Value ◽  
Moderating Effect ◽  
Information Value ◽  
Accounting Earnings ◽  
Content Type

Purpose Share pledge is a popular way to raise funds in China, but it aggravates information asymmetry. As an indispensable information intermediary in the financial market, media coverage affects asset price and pricing efficiency and impacts information asymmetry. This study aims to explore the governance role of media coverage as an information intermediary in the share pledge context in China. Design/methodology/approach Moderating effect and mediating effect analyses are the primary methods used to test the governance role of media coverage. The ordinary least squares model was used to test the relationship between share pledge and market performance and then proved the moderating effect of media coverage toward the corporate market value of pledge firms. Accounting earnings value relevance models were explored to test the path of media coverage on firm market value by mediating effect analysis. At last, subgroup tests were used to verify the heterogeneity of the moderating effect of media coverage. Findings In the context of share pledge in China, the higher the share pledge ratio, the higher is the market value of listed firms, which verifies the motivation of controlling shareholders to avoid the transfer of control right and the motivation to tunneling. Media coverage has a significant negative moderating effect on the relationship between share pledge rate and corporate value and has a significant impact on the accounting earnings value relevance of share pledge firms. From the perspective of long-term earnings, media coverage reduces the market performance of share pledge firms by reducing the value correlation of accounting earnings information. From the short-term price point of view, media coverage reduces the market performance of share pledge firms by improving the value correlation of accounting earnings information. Furthermore, media coverage has a more significant moderating effect in state-owned share pledge firms and low information transparency and low information disclosure quality firms. Research limitations/implications This paper does not distinguish the mode difference of spreading news and the impact of non-pledge media coverage. Also, this paper does not consider factors other than accounting information value relevance when exploring how media coverage affects the corporate market value. Share pledge firms should use media for publicity and play a role in media governance and should actively improve their information disclosure quality, strengthen communication with investors and reduce information asymmetry fundamentally. Practical implications This paper diversify the governance choices for share pledge firms and has important implications for firms, investors, information intermediaries and regulators. Media reports play an increasingly important role today, and any reports and predictions of major events may profoundly affect investors’ decisions. Although media reports can make up for the weakness of accounting information disclosure of equity pledge companies in some sense, it is still not a long-term strategy. Equity pledge companies should not only make use of media for publicity and play a role of media governance but also actively improve their information disclosure quality. Originality/value This paper focuses on share pledge firms to carry out in-depth research. Based on exploring the influence mechanism of share pledges, the authors find the importance of media governance. This paper expands the literature about the economic consequences of share pledges and provides empirical data for media governance of share pledge firms. This paper innovatively proves the governance role of media coverage from the view of accounting information value relevance. The main innovation point is the long and short-term perspective analysis of the influence of media coverage on the correlation of accounting earnings value. The heterogeneity effect analysis of media coverage also reflects the depth and strong practical guiding significance of this study.

The stock market’s reaction to accounting information: the cases of Chile and Peru

2016 ◽  
Vol 6 (3) ◽  
pp. 254-268 ◽  
Author(s):  
Mauricio Melgarejo ◽  
Eduardo Montiel ◽  
Luis Sanz
Keyword(s):  
Latin American ◽  
Stock Prices ◽  
Stock Markets ◽  
Stock Price ◽  
Small Firms ◽  
Accounting Information ◽  
Abnormal Returns ◽  
Earnings Announcement ◽  
Content Type ◽  
The Impact

Purpose – The purpose of this paper is to analyze the stock price and volume reactions around firms’ earnings announcement dates in two Latin American stock markets: Chile and Peru. Design/methodology/approach – This study uses multivariate regression analysis to determine the impact of accounting information on stock prices and volume traded around the firms’ earnings announcement dates. Findings – The authors find that quarterly earnings surprises explain stock abnormal returns and abnormal trading volumes around the earnings announcement dates in the Santiago (Chile) and Lima (Peru) stock exchanges. The authors also find that these two effects are driven by small firms. Originality/value – This is one of the first articles to study the price and volume reactions to accounting information in Latin American stock markets.

Equity market reaction to regulatory reforms: a case study of Indian banks

2020 ◽  
Vol 28 (3) ◽  
pp. 431-464
Author(s):  
Madhvi Sethi ◽  
Dipali Krishnakumar
Keyword(s):  
Abnormal Returns ◽  
Systematic Risk ◽  
Equity Market ◽  
Emerging Economy ◽  
Market Model ◽  
Content Type ◽  
Regulatory Measures ◽  
The Government ◽  
The Impact ◽  
Regulatory Reforms

Purpose Non-performing assets (NPAs) have been a cause of concern for the banking sector across the world and have invited a lot research interest, especially for emerging economies. In India, the NPAs grew many folds and reached alarming levels in 2013. The available mechanisms, such as Corporate Debt Restructuring Scheme, were not adequate to address this issue. The Central Reserve Bank of India with the Government of India introduced various guidelines, schemes and regulations like framework for revitalizing distressed assets to tackle NPAs during the period 2013-2017. Taking the case of India, the purpose of this paper is to examine policy initiatives and analyse the impact of regulatory shocks on the equity market returns and the systematic risk of individual banking stocks using an extended version of the market model. Design/methodology/approach In this study, the authors design the experiment to explore the reaction of banking stocks to the various regulatory measures and also measure the change in systematic risk for these stocks as a result of the regulatory changes. Following the approach suggested by Soraokina and Thornton (2015), the authors use the extended market model to test the reaction of banking company stocks to the regulatory measures. Findings The study finds that banking stocks did not earn significant abnormal returns on the announcement of these measures. However, the systematic risk of the banking index reduced significantly on the introduction of regulatory measures, and this risk reduction has been primarily in the stocks of private sector banks. Research limitations/implications This paper provides insights on the equity market's short-term reaction to the reform initiatives introduced by the government. The scope of the paper is with respect to one emerging economy, India, which underwent a series of regulatory reforms to tackle the banking NPA problem. Originality/value The paper fills an important research gap where the impact of schemes and regulations is captured for an emerging economy like India. It tries to bring forth the importance of these reforms and how an investor perceives the same. This paper tests for changes in systematic risk as measured by market beta as well as measures cumulative abnormal returns associated with important events in the process of regulatory reforms happening in India from 2013 to 2017.

The Pre-Holiday Effect in China: Abnormal Returns or Compensation for Risk?

2015 ◽  
Vol 18 (03) ◽  
pp. 1550014 ◽  
Author(s):  
Tian Yuan ◽  
Rakesh Gupta ◽  
Robert J. Bianchi
Keyword(s):  
Stock Returns ◽  
Abnormal Returns ◽  
Weak Form ◽  
Equity Market ◽  
Time Varying ◽  
Chinese Stock Market ◽  
Value Stocks ◽  
Industry Sector ◽  
Holiday Effect ◽  
Market Indexes

This study examines the pre-holiday effect in the Chinese stock market. It provides new insights into the weak-form efficiency of China's equity market indexes. Using the GARCH (1,1) model, we find the pre-holiday effect in broad-based Chinese stock returns and in size, value and growth style indexes. Further analysis using a GARCH (1,1)-M model suggests that the pre-holiday effect at both market and industry/sector levels can be attributed to time-varying risk. We show the pre-holiday effect reflects abnormal returns in small-cap, large-cap and growth style indexes while this same effect reflects compensation for bearing risk in value stocks.

THE USE OF HISTORICAL DATA IN ACCOUNTING RESEARCH: THE CASE OF THE AMERICAN SUGAR REFINING COMPANY

1997 ◽  
Vol 24 (2) ◽  
pp. 1-24 ◽  
Author(s):  
Robert Bricker ◽  
Kevin Brown
Keyword(s):  
Capital Market ◽  
Historical Data ◽  
Abnormal Returns ◽  
Deep Understanding ◽  
Historical Record ◽  
Historical Period ◽  
Financial Condition ◽  
A Value ◽  
Time Period ◽  
And Performance

In 1908, the American Sugar Refining Company (ASR) reversed its long-held policy of secrecy as to its financial condition and performance. Prior work, applying contemporary capital market methods to ASR security price data of that period, has suggested a value to ASR shareholders of this policy reversal. This paper examines the historical record of that time and presents additional evidence on this matter, particularly in terms of identifying potentially confounding events occurring during the period under study. The results of this analysis suggest a difficulty in attributing observed abnormal returns to ASR's secrecy policy reversal on the basis of the results obtained from applying capital markets methods. This analysis is useful for scholars interested in applying modern capital market methods to historical data. It highlights the significance of the possible effects of contemporaneous historical events, focuses attention on the importance of a deep understanding of the historical period studied, and suggests a value in combining historical and empirical-markets methods to gain a richer understanding of the events and conditions in the time period under study.

Financial institutions mergers: a strategy choice of wealth maximisation and economic value

2020 ◽  
Vol 12 (4) ◽  
pp. 495-529
Author(s):  
Mohamad Hassan ◽  
Evangelos Giouvris
Keyword(s):  
Credit Risk ◽  
Event Study ◽  
Financial Institutions ◽  
Value Creation ◽  
Economic Value ◽  
Abnormal Returns ◽  
Study Analysis ◽  
Event Window ◽  
Content Type ◽  
Merger Announcement

Purpose This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach This study examines FIs merger effect on bidders’ shareholder’s value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, +50 to +230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders’ value creation in short and long horizons. Diversification strategies do not influence bidding shareholders’ value. Local bank to bank mergers create shareholders’ value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Originality/value A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (−5 or +5 days) and long (+230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level.

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