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.

Does corporate tax aggressiveness explain future stock price crash? Empirical evidence from France

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taher Hamza ◽  
Elhem ZAATIR
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Policy Implications ◽  
Crash Risk ◽  
Corporate Tax ◽  
Price Informativeness ◽  
Content Type ◽  
Tax Aggressiveness ◽  
The Impact

Purpose This study aims to examine the impact of corporate tax aggressiveness on future stock price crash. It also tests the corporate tax aggressiveness prediction power of the stock price crash via a long forecast window (two years). Design/methodology/approach The study sample consisted of 1,169 firm-years observations. The multivariate analysis uses three measures of stock price crash risk, as a dependent variable. The key variable is tax aggressiveness lagged by one period (one year) as all independent variables. As a robustness check, this paper uses alternate measures of earning management and a longer forecast window (two years) to predict stock price crash risk. Findings Tax aggressiveness activity is positively related to a firm-specific future stock price crash. Corporate tax aggressiveness predicts stock price crash risk for a long forecast window (two years). The findings are robust to a number of checks and have several policy implications. Practical implications Investors should be cautious about the different risks of corporate tax aggressiveness: stock price crash risk. The important role of firm disclosure which leads to more relevant stock price informativeness. Adopt accounting conservatism behavior. The market perceives a socially irresponsible behavior and may harm the firm reputation. Social implications Incentives for French regulators to reduce the feeling of injustice by SMEs vis-à-vis large international companies that have the possibility of transferring part of their profits to a country different from that where it should be taxed to reduce their tax bases. Originality/value French companies are among the heavily taxed in Europe which makes France a particularly suitable context for studying tax aggressiveness issues. The first in the French context, that document a significant and positive relation between tax aggressiveness and future crash risk. It focuses on the important role of corporate tax planning as a means of withholding bad news and its consequences in inflating stock prices.

Aggressive tax planning and stock price synchronicity: evidence from China

2019 ◽  
Vol 15 (5) ◽  
pp. 829-857 ◽  
Author(s):  
Hua Feng ◽  
Ahsan Habib ◽  
Gao liang Tian
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Tax Planning ◽  
Specific Information ◽  
Price Informativeness ◽  
Firm Level ◽  
Stock Price Synchronicity ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity. Design/methodology/approach Employing the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity. Findings The authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness. Practical implications This study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective. Originality/value First, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.

scholarly journals Financial Literacy and Stock Price Informativeness: a Cross-Country Study

2018 ◽  
Vol 63 (1) ◽  
pp. 63-72
Author(s):  
Anita Todea
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Financial Literacy ◽  
Stock Price ◽  
Individual Investors ◽  
Specific Information ◽  
Price Informativeness ◽  
Stock Price Informativeness ◽  
The Individual ◽  
The Impact

Abstract This paper examines the impact of financial literacy on stock price informativeness in a sample of firms from 20 countries. Using four measures of stock price informativeness, we find a significant relationship between higher financial literacy and higher stock price informativeness. The individual investors’ contribution regarding the incorporation of specific information into stock prices includes private information also and not mere specific information in the general sense. Financial knowledge is the key element that helps individual investors to incorporate specific information into stock prices.

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.

scholarly journals Culture and Stock Price Reaction to Private Information

2018 ◽  
Vol 11 (1) ◽  
pp. 117-130
Author(s):  
Anita Todea
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Stock Price ◽  
Financial Openness ◽  
Price Informativeness ◽  
Stock Price Reaction ◽  
Stock Price Informativeness ◽  
Developed Stock Markets ◽  
The Impact ◽  
Low Uncertainty

AbstractThis paper examines the impact of culture on stock price informativeness in a sample of firms from 23 developed stock markets. We find that the information content of private information in stock prices is higher in more individualistic countries and in low uncertainty-avoiding countries. Moreover, financial openness stimulates the incorporation of private information into individualistic countries and in low uncertainty-avoiding countries.

scholarly journals Managerial Ability and Income Smoothing

2019 ◽  
Vol 95 (4) ◽  
pp. 1-22 ◽  
Author(s):  
Bok Baik ◽  
Sunhwa Choi ◽  
David B. Farber
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Cash Flows ◽  
Income Smoothing ◽  
High Ability ◽  
Managerial Ability ◽  
Price Informativeness ◽  
Future Performance ◽  
Stock Price Informativeness ◽  
Future Cash Flows

ABSTRACT In this study, we investigate whether managerial ability is related to income smoothing and, if so, whether smoothing associated with managerial ability improves the informativeness of earnings and stock prices about future performance. Using a large sample of firms, we find that managerial ability is positively related to smoothing. More importantly, we show that high-ability managers incorporate more forward-looking information about cash flows into current earnings through smoothing, thereby enhancing earnings informativeness. We also find that smoothing associated with high-ability managers improves stock price informativeness about future cash flows. Our study should be of interest to researchers, practitioners, and others concerned with understanding the determinants and usefulness of smoothing.

The Role of Stock Price Informativeness in Compensation Complexity

2019 ◽  
Author(s):  
Benjamin Bennett ◽  
Gerald T. Garvey ◽  
Todd T. Milbourn ◽  
Zexi Wang
Keyword(s):  
Stock Price ◽  
Price Informativeness ◽  
Stock Price Informativeness
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