When no news is good news: failing to increase dividends

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
David Michayluk ◽  
Karyn Neuhauser ◽  
Scott Walker
Keyword(s):  
Contrast Effect ◽  
Design Methodology ◽  
Abnormal Returns ◽  
Good News ◽  
Sample Design ◽  
Market Returns ◽  
Content Type ◽  
Dividend Announcements ◽  
Effect Hypothesis ◽  
Dividend Increases

PurposeThe study's purpose is to examine market returns around dividend announcements that contrast with a pattern of prior dividend announcements.Design/methodology/approachThe paper identifies firms that have a smooth dividend pattern of once-a-year dividend increases but at some point break that pattern and announce an unchanged dividend. The sample design allows the opportunity to investigate the market reaction to unchanged dividend announcements when an increase was likely to have been expected.FindingsThe results indicate that failing to increase the dividend is associated with significantly positive abnormal returns that are greater in magnitude for more entrenched dividend-increase records, supporting a contrast-effect hypothesis.Originality/valueThe results indicate that dividends are interpreted not only relative to the immediate dividend amount but also how the decision contrasts with dividends over a prolonged period. This finding suggests that the information content of the announcement of an unchanged dividend can vary according to the prior dividend pattern.

Investigating beta anomaly: comparison of Shariah-compliant and conventional stocks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Ali Jibran Qamar ◽  
Asma Hassan ◽  
Mian Sajid Nazir ◽  
Abdul Haque
Keyword(s):  
Comparative Analysis ◽  
Stock Market ◽  
Stock Return ◽  
Abnormal Returns ◽  
Good News ◽  
Market Model ◽  
Cash Dividend ◽  
Content Type ◽  
Dividend Announcements ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of dividend announcements on the stock return of Shariah-compliant and conventional stocks. Design/methodology/approach An event study methodology is applied to study the beta anomaly. Market-adjusted return model, mean-adjusted return model and market model have been applied to calculate excess returns. Estimation period used in this study is 130 days, and event period consists of 21 days in total, i.e. starting from the day –10 “before the cash dividend announcement” to day +10 “after the cash dividend announcements. Findings It has been concluded from the results that dividend plays an informational role in the Pakistan Stock Exchange. As the investors in Pakistan react favorably to the dividend increase announcements and unfavorably to the dividend decrease announcements, they consider dividend increase announcement as good news and dividend decrease announcement as bad news. Practical implications The findings of this study have several implications for different participants of the stock market, such as investors, academicians, researchers, fund managers and policymakers. They can use this information to make decisions while making efficient portfolios. Investors may get abnormal returns by focusing on the dividend announcement patterns. This can influence the attitude of investors toward efficient investments in the stock market and ultimately contribute to the betterment of society. This study is also beneficial for academicians and researchers, as it provides a comparative analysis of Shariah-compliant and conventional stocks and the anomalous effect of dividend announcements on stock return. Originality/value Limited research in the world’s context and null is available in Pakistani context on the subject matter. The comparative analysis of “Shariah-compliant” and “conventional” stocks provides insight into the asset pricing of Shariah-compliant stocks that have not been explored earlier. This study also uses three different methods (mean model, market model and market-adjusted return models) to compare Shariah-compliant and conventional stocks

Director trading, or lack thereof, and acquiring firm performance

2016 ◽  
Vol 29 (3) ◽  
pp. 332-347 ◽  
Author(s):  
Md Mosharraf Hossain ◽  
Richard Arthur Heaney ◽  
SzeKee Koh
Keyword(s):  
Cross Section ◽  
Design Methodology ◽  
Market Reaction ◽  
Abnormal Returns ◽  
Event Studies ◽  
Good News ◽  
Content Type ◽  
Acquiring Firms ◽  
Practical Implications ◽  
Is Value

Purpose This paper aims to address the question of whether acquiring firm directors trading, prior to a merger or acquisition (M&A) announcement, predicts the share market reaction on M&A announcement. Design/methodology/approach Event studies and cross-section regression were used in this analysis. Findings This paper finds that acquiring firms with no director trading and firms with net director purchases in the 12 months prior to the M&A announcement earn positive abnormal returns. It is also found that share market reaction to M&A announcements is considerably larger for acquiring firms whose directors do not trade relative to those companies with directors who do trade over the prior 12 months. This director non-trading result is further born out in regression analysis. Research limitations/implications The absence of pre-M&A announcement director trading could reflect lower agency costs for the acquiring firm and this might explain to stronger announcement day effect for this group of firms. Practical implications The fact that directors choose not to trade in their shares prior to a M&A transaction appears to be viewed as good news by the market. Social implications Director trading is value relevant for the acquiring firm and so it is critical that director trading is transparent. Originality/value To the best of the authors' knowledge, this question has not been addressed in the literature before, particularly the finding for firms with no director trading in the period prior to the M&A announcement.

The effect of the imposition of a public reprimand on the stock price of companies in Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Emie Famieza Zainudin ◽  
Hafiza Aishah Hashim ◽  
Shahnaz Ismail
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Design Methodology ◽  
Negative Impact ◽  
Abnormal Returns ◽  
Investment Decisions ◽  
Market Model ◽  
Market Reactions ◽  
Content Type ◽  
A Company

Purpose This paper aims to examine the effect of the imposition of public reprimands on the underlying stock prices of companies in Malaysia. Design/methodology/approach Data on 148 companies that received public reprimands during the period from 2007 to 2013 were collected from the Bursa Malaysia website to analyse the market reactions to the imposition of public reprimands. Findings Based on a market model of abnormal returns, the empirical result showed that the imposition of a public reprimand had a negative impact on a company’s stock price. Moreover, when a market model of average abnormal returns (AAR) was used, the result indicated that companies that had received a public reprimand had a negative AAR value. Research limitations/implications The findings from this study have implications for shareholders in making their investment decisions because they can switch their investments to other companies and markets after a company in which they are interested or have made an investment has received a public reprimand. Originality/value There is limited research on the imposition of public reprimands and the effect that it has on companies in developing countries. Hence, this study contributes to research in this area by providing evidence on the effect of public reprimand on stock price reactions in the context of a developing country, namely, Malaysia.

Stock market reaction to cash dividends: evidence from the Nigerian stock market

2019 ◽  
Vol 45 (3) ◽  
pp. 366-380
Author(s):  
Friday Kennedy Ozo ◽  
Thankom Gopinath Arun
Keyword(s):  
Stock Market ◽  
Event Study ◽  
Stock Price ◽  
Abnormal Returns ◽  
Cash Dividend ◽  
Content Type ◽  
Price Reaction ◽  
Stock Market Reaction ◽  
Dividend Announcements ◽  
Stock Price Reaction

PurposeVery little is known about the effect of dividend announcements on stock prices in Nigeria, despite the country’s unique institutional environment. The purpose of this paper is, therefore, to provide empirical evidence on this issue by investigating the stock price reaction to cash dividends by companies listed on the Nigerian Stock Exchange.Design/methodology/approachStandard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the cash dividend announcement date. Abnormal returns are also calculated employing the market-adjusted return model as a robustness check and to test the sensitivity of the results toβestimation. The authors also examine the interaction between cash dividends and earnings by estimating a regression model where announcement abnormal returns are a function of both dividend changes and earnings changes relative to stock price.FindingsThe study find support for the signaling hypothesis: dividend increases are associated with positive stock price reaction, while dividend decreases are associated with negative stock price reaction. Companies that do not change their dividends experience insignificant positive abnormal returns. The results also suggest that both dividends and earnings are informative, but dividends contain information beyond that contained in earnings.Research limitations/implicationsThe sample for the study includes only cash dividend announcements occurring without other corporate events (such as interim dividends, stock splits, stock dividends, and mergers and acquisitions) during the event study period. The small firm-year observations may limit the validity of generalizations from these conclusions.Practical implicationsThe findings are useful to researchers, practitioners and investors interested in companies listed on the Nigerian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Nigerian stock market.Originality/valueThis paper adds to the very limited research on the stock market reaction to cash dividend announcements in Nigeria; it is the first of its kind employing a unique cash dividends data.

Effect of pre-disclosure information leakage by block traders

2019 ◽  
Vol 20 (5) ◽  
pp. 470-483
Author(s):  
Tai-Young Kim
Keyword(s):  
Moral Hazard ◽  
Design Methodology ◽  
Abnormal Returns ◽  
Information Leakage ◽  
Market Reactions ◽  
Content Type

Purpose This paper aims to investigate pre-disclosure information leakage by block traders and market reactions to disclosures of off-hours block trading compared to off-market trading. Design/methodology/approach Stock responses were analyzed based on timely disclosures regarding Korean firms’ decisions to dispose of their own shares to improve their financial structures. Findings The results showed that pre-disclosure abnormal returns were generated in off-hours block trading. In contrast, on disclosure days, the returns for off-hours block trading were significantly lower than those for off-market trading. It was consistent with prior studies, indicating that block traders were related to information leakage and caused moral hazard problems. Originality/value The comparison between off-hours block trading and off-market trading provides important insights regarding block traders’ behavior. This study’s findings on the leakage of information from block traders indicate the need for firms to exercise caution when using block traders.

Fair value accounting, earnings management, and the case of bargain purchase gain

2019 ◽  
Vol 28 (2) ◽  
pp. 229-253
Author(s):  
Steven Lilien ◽  
Bharat Sarath ◽  
Yan Yan
Keyword(s):  
Design Methodology ◽  
Fair Value ◽  
Control Group ◽  
Fair Value Accounting ◽  
Market Returns ◽  
Accounting Earnings ◽  
Content Type ◽  
Level 3 ◽  
Accounting Earnings Management

Purpose The purpose of this paper is to investigate the association between bargain purchase gains (BPGs) booked by the acquirer and smoothing of acquirers’ earning performance across time. Design/methodology/approach The authors use a sample of 122 bargain purchase acquisitions in non-financial industries from 2009 to 2012 and a pair-match control group of 122 goodwill acquisitions. Findings The authors find that BPGs, and in particular, the Level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns. Originality/value This study is the first one to investigate bargain purchase acquisitions in a broad range of non-financial industries and suggests that managers are using the valuation of intangibles to avoid unfavorable earnings even though these valuations are not credible to investors.

The impact of Mad Money recommendations during bull and bear markets

2016 ◽  
Vol 12 (1) ◽  
pp. 52-70 ◽  
Author(s):  
Adam J. Roszkowski ◽  
Nivine Richie
Keyword(s):  
Prospect Theory ◽  
Behavioral Finance ◽  
Abnormal Returns ◽  
Good News ◽  
Content Type ◽  
Bear Market ◽  
Bear Markets ◽  
The Impact ◽  
Investor Reaction ◽  
Bull And Bear Markets

Purpose – The purpose of this paper is to examine semi-strong market efficiency by observing the behavioral finance implications of Jim Cramer’s recommendations in bull vs bear markets. The authors extend the literature by analyzing investor reaction through the lenses of prospect theory, overreaction, and herding. Design/methodology/approach – The authors test for abnormal returns in response to Mad Money buy and sell recommendations. The authors use a sample of buy and sell recommendations from MadMoneyRecap.com from July 28, 2005 through February 9, 2009. The 3.5-year time period is the most recent and comprehensive set of Mad Money recommendations that has been tested to date. Findings – The results indicate market inefficiency at the semi-strong level. Furthermore, the findings highlight the loss aversion tendencies of investors in regards to prospect theory of Kahneman and Tversky (1979) as well as the disposition effect of Shefrin and Statman (1985). Evidence also exists consistent with the herding and overreaction hypotheses. Practical implications – The evidence suggests contrarian behavior in which investors respond positively to good news in bad times – perhaps, in effort to stay the course and at least break even. This behavior may suggest that losers tend to hold on to losses in hopes of recouping them. Thus, positive information in bad times could further persuade market participants to hang on to or buy more of losers, while also persuading non-shareholders to buy in as well. Originality/value – Though other studies including Kenny and Johnson (2010) have estimated abnormal returns in response to analyst recommendations, to the knowledge, none has examined behavioral implications of investor reaction to buy and sell recommendations in both bull and bear markets. Furthermore, the study captures a longer bull and bear market and covers two definitions of such markets.

Currency returns during democratic transition: evidence from Tunisia

2019 ◽  
Vol 45 (7) ◽  
pp. 966-979
Author(s):  
Ghadi Saad ◽  
Taoufik Bouraoui
Keyword(s):  
Design Methodology ◽  
Democratic Transition ◽  
Abnormal Returns ◽  
Market Model ◽  
Study Analysis ◽  
Content Type ◽  
Policy Effects ◽  
Cumulative Abnormal Returns ◽  
New Evidence ◽  
The International Monetary Fund

Purpose The purpose of this paper is to investigate the question whether democratic transition elections influence currency returns. Also, the paper examines the behavior of the currency market around these elections in Tunisia. Design/methodology/approach Empirical data are collected from the International Monetary Fund, the Central Bank of Tunisia and the Tunisian stock market websites. The paper employs event study analysis using a market model and investigates abnormal currency returns around the four election events that occurred during the period of democratic transition in Tunisia (2011–2015). A robustness test is also conducted to control for monetary policy effects. Findings The results indicate that democratic transition does impact currency returns. The authors did not find any significant effect on the events dates (t0). However, event windows around the elections days reacted significantly to the events. The authors notice a significant decrease in cumulative abnormal returns (CARs) at event periods leading up to the elections. Post-event windows perceived negative CARs in the first and second election, and positive CARs in the last two elections. The authors also find that the change in the victors of the elections does not cause major differences to CARs. Further, the authors do not find significant results when controlling for inflation and interest rate. Originality/value There is no evidence yet on how democratic transition elections can affect currency returns. Given that currency is a leading indicator of the performance of the financial sector, this paper should provide policymakers with new evidence on the response of currency returns to democratic transition.

scholarly journals Daily abnormal price changes and trading strategies in the FOREX

2020 ◽  
Vol 48 (1) ◽  
pp. 211-222
Author(s):  
Guglielmo Maria Caporale ◽  
Alex Plastun
Keyword(s):  
Design Methodology ◽  
Abnormal Returns ◽  
Trading Strategies ◽  
Price Changes ◽  
Content Type ◽  
Cumulative Abnormal Returns ◽  
Market Inefficiency ◽  
Intraday Data ◽  
Abnormal Profits ◽  
New Evidence

PurposeThis paper explores abnormal price changes in the FOREX by using both daily and intraday data on the EURUSD, USDJPY, USDCAD, AUDUSD and EURJPY exchange rates over the period 01.01.2008–31.12.2018.Design/methodology/approachIt applies a dynamic trigger approach to detect abnormal price changes and then various statistical methods, including cumulative abnormal returns analysis, to test the following hypotheses: the intraday behaviour of hourly returns on overreaction days is different from that on normal days (H1), there are detectable patterns in intraday price dynamics on days with abnormal price changes (H2) and on the following days (H3).FindingsThe results suggest that there are statistically significant differences between intraday dynamics on days with abnormal price changes and normal days respectively; also, prices tend to change in the direction of the abnormal change during that day, but move in the opposite direction on the following day. Finally, there exist trading strategies that generate abnormal profits by exploiting the detected anomalies, which can be seen as evidence of market inefficiency.Originality/valueNew evidence on abnormal price changes and related trading strategies in the FOREX.

Dissecting sources of price momentum: evidence from India

2015 ◽  
Vol 10 (4) ◽  
pp. 801-819 ◽  
Author(s):  
Sanjay Sehgal ◽  
Kanu Jain
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Good News ◽  
Economic Variables ◽  
Content Type ◽  
Price Momentum ◽  
Momentum Profits ◽  
Arbitrage Opportunities ◽  
Portfolio Managers

Purpose – Momentum is an unresolved puzzle for the financial economists. The purpose of this paper is to dissect the sources of momentum profits and investigate the possible role played by the macro-economic variables in explaining them. Design/methodology/approach – The data for 493 companies that form part of Bombay Stock Exchange 500 index in India is used for calculating 6-6 momentum profits. Profits from the strategy are regressed on Capital Asset Pricing Model (CAPM) and Fama-French (FF) model to see whether they can explain these profits. Guided by prior research, three methodologies are used to see the possible role played by macro-economic variables in explaining momentum payoffs. Findings – The empirical results show that momentum profits are persistent in the intermediate horizon. CAPM and FF three-factor model fail to explain these returns. Price momentum seems to be explained in one of the model by lagged macro-economic variables which lend an economic foundation to the Carhart factor. The “Winner minus Loser” factor explains about 37 percent of abnormal returns on the winner portfolio that are missed by the FF model. The unexplained momentum profits seem to be an outcome of investors’ over-reaction to past information. Hence, the sources of price momentum profits seem to be partially behavioral and partially rational. Practical implications – The failure of risk models in fully explaining the momentum profits may be good news for portfolio managers who are looking out for stock market arbitrage opportunities. Originality/value – This paper fulfills an identified need to study the sources behind price momentum profits in Indian context.

Sign in / Sign up

Export Citation Format

Share Document