Strategic investment acquisitions performance in UK firms: the impact of managerial overconfidence

2019 ◽  
Vol 17 (1) ◽  
pp. 24-41 ◽  
Author(s):  
Nour Adel ◽  
Fadi Alkaraan
Keyword(s):  
Contextual Factors ◽  
Relative Size ◽  
Abnormal Returns ◽  
Market Model ◽  
Strategic Investment ◽  
Content Type ◽  
Cross Border ◽  
Industrial Sectors ◽  
Book To Market Ratio ◽  
The Impact

PurposeThis paper focuses on the influence of overconfident managers on strategic investment acquisitions performance, by investigating the influence of key contextual factors on acquirers’ returns of UK domestic and cross-border acquisitions during the period 2000-2009. In this study, particular attention has been paid to management attributes (frequent acquirers vs non-frequent acquirers); method of payment (cash vs non-cash deals); the geographic scope (domestic vs cross-border deals); the type of the target (public vs private); the industry scope; and the relative size.Design/methodology/approachAn event study is used to analyse domestic and cross-border acquisitions. The market model is used for estimating the acquirers’ abnormal returns of 1,133 domestic and cross-border acquisitions by UK firms between 1 January 2000 and 31 December 2009.FindingsThe findings reveal that acquirers with domestic targets have higher returns than cross-border targets. Infrequent acquirers generate higher returns from domestic and cross-border acquisitions than frequent acquirers. Further, acquirers that acquire domestic targets from different industrial sectors produce higher returns than acquirers with targets from the same sector. Acquirers with cash deals, private targets and high book-to-market ratio generate significant returns compared to acquirers with non-cash deals, low book-to-market ratio and public targets and that for domestic and cross-border deals. These results suggest that UK domestic and cross-border acquisitions are partially shaped by overconfident managers.Research limitations/implicationsThe study has a number of limitations, including the use of the market model, the data-collection process and the limited number of contextual factors. Future research may examine a number of avenues related to the current study, including incorporating the acquiring firms’ financial characteristics.Practical implicationsThe study provides a better understanding of the influence of contextual factors on the success and failure of strategic investment projects such as acquisitions. Results of post-acquisitions performance in UK firms show how estimation of value can be distracted at the pre-acquisition stage because of overconfident managers.Originality/valueResults of post-acquisitions performance in UK firms show how estimation of value can be distracted at the pre-acquisition stage because of overconfident managers.

The impact of qualified audit opinion on stock returns: an empirical study at Amman stock exchange

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rana Bayo Flees ◽  
Sulaiman Mouselli
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Market Model ◽  
Content Type ◽  
Going Concern ◽  
Study Approach ◽  
Audit Opinions ◽  
The Impact ◽  
First Time

Purpose This paper aims to investigate the impact of qualified audit opinions on the returns of stocks listed at Amman Stock Exchange (ASE) after the introduction of the recent amendments by the International Auditing and Assurance Standard Board (IAASB) on audits reporting and conclusions. It further investigates if results differ between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. Design/methodology/approach Audit opinions’ announcements and stock returns data are collected from companies’ annual reports for the fiscal years 2016 to 2019 while stock returns are computed from stock closing prices published at ASE website. The authors apply the event study approach and use the market model to calculate normal returns. Cumulative abnormal returns (CARs) and average abnormal returns (AARs) are computed for all qualified audit opinions’ announcements. Findings The empirical evidence suggests that investors at ASE do not react to qualified audit opinions announcements. That is, the authors find an insignificant impact of qualified audit opinion announcements on stock returns using both CAR and AAR estimates. The results are robust to first time and sequenced qualifications, and for qualifications with going concern. Results are also robust to the use of risk adjusted market model. Research limitations/implications The insignificant impact of qualified audit opinions on stock returns have two potential conflicting research implications. First, the new amendments introduced to auditors’ report made them more informative and reduce the negative signals contained in the qualified opinions. That is, investors are now aware of the real causes of qualifications and not overreacting to the qualified opinion. Second, the documented insignificant impact confirms that ASE is not a semi-strong form efficient. Practical implications The apparent excessive use of qualifications should ring the bell on whether auditors misuse their power or companies are really in trouble. Hence, the Jordanian regulatory bodies need to warn auditors against the excessive use of qualifications on the one hand, and to raise the awareness of investors on the implications of auditors’ opinions on the other hand. Originality/value This study is innovative in twofold. First, it explores the impact of qualified audit opinions on stock returns after the introduction of new amendments by IAASB at ASE. In addition, it uses event study approach and distinguishes between first time qualified and sequenced qualifications, and between plain qualified opinion and qualifications with going concern. The results are consistent with efficient market theory and behavioral finance explanations.

Do firms harvest from political connections during general elections? Case of Pakistan

2020 ◽  
Vol 27 (1) ◽  
pp. 258-273
Author(s):  
Ayesha Ashraf ◽  
M. Kabir Hassan ◽  
Khurram Abbas ◽  
Qamar Uz Zaman
Keyword(s):  
Stock Returns ◽  
Abnormal Returns ◽  
Share Price ◽  
Market Model ◽  
Political Connections ◽  
Content Type ◽  
Connected Group ◽  
Playing Field ◽  
General Elections ◽  
The Impact

Purpose This paper aims to examine the impact of general elections on the stock returns of the politically connected group affiliated firms of Pakistan. Design/methodology/approach This study uses the market model to assess the impact of political connections (PCs) on abnormal stock returns, before and after election events. We have used share price data of non-financial firms of Pakistan for the years 2008-2013. Findings It has been found that behavior of cumulative average abnormal returns (CAAR) is significantly different for standalone and politically connected group affiliated firms. The results reveal that CAARs of politically connected group affiliated firms have experienced less deviation as compared to stand alone firms. Therefore, it is argued that politically connected group firms may reduce the impact of political uncertainty on stock returns in comparison to stand alone firms. Practical implications This study is helpful for policy regulators of Pakistan to devise appropriate policies to maintain a level playing field for politically connected and standalone firms. Originality/value This study provides a new dimension to understand the role and association of PCs and general elections with stock markets returns.

scholarly journals The impact of divestitures on shareholder wealth – The DACH case

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nils Teschner ◽  
Herbert Paul
Keyword(s):  
Positive Impact ◽  
Relative Size ◽  
Abnormal Returns ◽  
Shareholder Wealth ◽  
Wealth Effects ◽  
Wealth Creation ◽  
Publicly Traded ◽  
Content Type ◽  
Publicly Traded Companies ◽  
The Impact

PurposeThe purpose of this research is to study the impact of divestitures on shareholder wealth. This study covers selloffs of publicly traded companies in Germany, Austria and Switzerland (DACH region) during the period 2002–2018. It aims to understand the overall effect of selloffs on shareholder wealth as well as the impact of important influencing factors.Design/methodology/approachThis study is part of capital market studies which investigate shareholder wealth effects (abnormal returns) using event study methodology. To determine the significance of abnormal returns, a standardized cross-sectional test as suggested by Boehmer et al. (1991) was applied. The sample consists of 393 selloffs of publicly traded companies with a deal value of at least EUR 10m.FindingsThe findings confirm the overall positive impact of selloffs on shareholder wealth. The average abnormal return on the announcement day of the sample companies amounts to 1.33%. The type of buyer, the relative size of the transaction as well as the financial situation of the seller in particular seem to influence abnormal returns positively.Originality/valueThis study investigates shareholder wealth creation through selloffs in the DACH region, a largely neglected region in divestiture research, but now very relevant due to increasing pressure of active foreign investors. Sophisticated statistical methods were used to generate robust findings, which are in line with the results of similar studies for the US and the UK.

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 announcement and implementation reaction to China's margin trading and short selling pilot programme

2014 ◽  
Vol 10 (3) ◽  
pp. 368-384 ◽  
Author(s):  
Saqib Sharif ◽  
Hamish D. Anderson ◽  
Ben R. Marshall
Keyword(s):  
Stock Returns ◽  
Event Study ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Short Selling ◽  
Market Model ◽  
Short Sales ◽  
Content Type ◽  
Pilot Programme ◽  
The Impact

Purpose – The purpose of this paper is to investigate how the announcement and implementation of short sales and margin trading regulation affects Chinese stock returns and trading volume. On 31 March 2010, the Chinese regulators launched a pilot programme, allowing short sales and margin trading for 50 Shanghai Stock Exchange and 40 Shenzhen Stock Exchange stocks. Design/methodology/approach – This paper uses an event study approach to compare market model abnormal returns (ARs) of the pilot firms with two distinct matched firm samples. A volume event study is also conducted to examine abnormal trading activity surrounding the key events in the pilot stocks. Findings – Negative ARs follow both the announcement and implementation of short selling and margin trading. This suggests the negative impact of short sales dominates the positive impact of margin trading on an average. Volume also declines, which is consistent with uninformed investors’ seeking to avoid trading against informed traders. Originality/value – The paper appears to be the first to address the impact of both the announcement and implementation of short selling and margin trading rule changes on returns and liquidity using individual stock data.

When and why firms issue sukuk?

2018 ◽  
Vol 44 (6) ◽  
pp. 774-786 ◽  
Author(s):  
Hasib Ahmed ◽  
M. Kabir Hassan ◽  
Blake Rayfield
Keyword(s):  
Event Study ◽  
Risk Sharing ◽  
Abnormal Return ◽  
Abnormal Returns ◽  
Reaction Model ◽  
Market Model ◽  
Content Type ◽  
Book To Market Ratio ◽  
Financial Characteristics ◽  
Investor Reaction

Purpose The purpose of this paper is to analyze whether investors perceive the issuance of sukuk differently than they do in case of conventional bonds, by using event study with superior data. Then, it analyzes whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. Finally, the paper proposes a testable model explaining the investor reaction. Design/methodology/approach This paper uses market model event study to assess investor reaction to the issuance of sukuk. Then, linear and logistic regressions are used to test whether financial characteristics of issuers can explain the abnormal return and likelihood of sukuk issuance. To investigate the differences between sukuk issuers and bond issuers, this paper tests the difference in means of issuer characteristics. Finally, the sample is subdivided into good and bad firm prospects according to dividend/earnings ratio and book-to-market ratio. The subdivisions are used to test the proposed model explaining the investor reaction. Findings The study finds that a large variety of firms issues sukuk. The event study reports significant negative abnormal returns around the announcement date of sukuk issuance. The study also reveals that the earning prospect of issuer firms affect the investor reaction. Firms with lower earning prospect receive a negative reaction from the investors. Also, smaller, or financially unhealthy firms are more likely to issue sukuk. Smaller and riskier firms issue sukuk, because participation in the market is less constrained. In other words, the risk-sharing nature of sukuk might imply that the firm is not confident about the future prospect. However, if the firm has good earnings prospects, investors react to the issuance of sukuk negatively. Research limitations/implications Reliability and availability of data is a hurdle to test the investor reaction model. As more data become available, the models implications can be further tested. Originality/value This paper uses the most complete set of data to study sukuk, making it the most selection bias-free and complete study. Moreover, the proposed investor reaction model will enrich the theory.

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

Do cross-border acquisitions involving emerging market firms create value

2014 ◽  
Vol 52 (8) ◽  
pp. 1451-1473 ◽  
Author(s):  
P.C. Narayan ◽  
M. Thenmozhi
Keyword(s):  
Emerging Markets ◽  
Value Creation ◽  
Emerging Market ◽  
Operating Performance ◽  
Relative Size ◽  
Rank Test ◽  
Content Type ◽  
Cross Border ◽  
Emerging Market Firms ◽  
The Impact

Purpose – The purpose of this paper is to contribute to M&A literature by explicitly investigating whether cross-border acquisitions involving emerging markets, either as acquirers or as targets, create value and how is the performance outcome in such acquisitions impacted by deal-specific characteristics. Design/methodology/approach – This study uses industry-adjusted operating performance to measure acquisition gains, the Wilcoxon signed rank test to examine value creation potential and OLS regression to evaluate the impact of deal characteristics on acquisition gains. Findings – The authors find very pronounced value destruction when emerging market firms acquire targets in developed markets, the adverse outcome being further aggravated when the mode of acquisition is “tender offer” rather than a “negotiated deal”. On the other hand, when developed market firms acquire targets from emerging markets, there is an even chance of value creation, the outcome being favourably influenced by the pre-acquisition performance of the two firms, relative size of the target and cash (not stock-swap) as the mode of payment. Originality/value – The findings from this paper offer an important, statistically significant explanation on the value creation potential and the impact of deal characteristics on post-acquisition operating performance in cross-border acquisitions involving emerging market firms. This finding assumes immense significance, given the rapidly changing landscape of global M&A, witnessed through a continuous rise in the volume and value of cross-border acquisitions involving emerging market firms.

DO PRE & POST MERGER INTEGRATION MATTERS IN CROSS BORDER MERGER & ACQUISITION (CBM&A)

2020 ◽  
Vol 38 (2) ◽  
Author(s):  
Suman Talreja ◽  
Sajid Hussain Mirani ◽  
Jawaid Ahmed Ahmed Oureshi ◽  
Farhan Ahmed
Keyword(s):  
Abnormal Returns ◽  
The United States ◽  
Market Model ◽  
Event Window ◽  
Cross Border ◽  
Announcement Date ◽  
Acquiring Firms ◽  
Short Run ◽  
The Uk ◽  
The Impact

This study aims to assess the impact of deal size, value and firm-specific factors on the performance of UK acquiring firms from 2006 to 2016 in short-run. The event window methodology was used to analyze short run effects and standard market model was used to calculate abnormal and expected returns. Short event window was made from one day before the announcement of CBM&A to the one day after the announcement date of the event and from five days before the announcement date to the five days after the date of the announcement of the deal and similarly from ten days before the event was announced for ten days after the event was announced (-1, 1), (-5, 5) and (-10, 10) respectively. The study infers that the UK acquirers do not earn statistically significant positive abnormal returns in the short run. The uni variate analysis shows that the short-run performance of UK acquirers is influenced by acquisition strategy, and the payment methods. After the fifth merger wave, international deals in merger and acquisition along with cross border deals started, which created the value for the economy as well. Since 1985, several deals have been done in the United States and the United Kingdom. This research paper is intended to provide empirical evidence on recent data of CBM&A transactions of the UK acquiring firms. The present study is a indispensable for the firms seeking cross border deals and fills the gap in the existing literature.

Effect of supply chain strategic collaboration announcements on shareholder value: an empirical investigation from China

2020 ◽  
Vol 40 (4) ◽  
pp. 389-414
Author(s):  
Weihua Liu ◽  
Wanying Wei ◽  
Cheng Si ◽  
Dong Xie ◽  
Lujie Chen
Keyword(s):  
Supply Chain ◽  
Market Reaction ◽  
Emerging Market ◽  
Shareholder Value ◽  
Abnormal Returns ◽  
Signaling Theory ◽  
Market Model ◽  
Content Type ◽  
Control Power ◽  
The Impact

PurposeThis study empirically examines the impact of announcements on supply chain strategic collaboration (SCSC) on companies' shareholder value.Design/methodology/approachThis study analyzes changes in shareholder value of companies listed in China based on data of 208 SCSC announcements. The signaling theory is applied to determine correlation among SCSC announcements and the market. An event study is used to estimate the stock market reaction to SCSC announcements. The common market model estimates stock abnormal returns after the event. The least squares method and regression model calculate the model parameter value.FindingsThere is a positive and statistically significant relationship between SCSC announcement and shareholder value. Market reaction to product development collaboration is significantly higher than to technology-sharing collaboration, market collaboration, and other SCSC types. The market reacts more positively to suppliers and companies with greater supply chain control power than to buyers and companies with lower control power. Announcements from the service supply chain can lead to stronger market reactions than those from manufacturing supply chains.Practical implicationsThe findings provide a systematic assessment of how SCSC announcements contribute to firms' shareholder value. The result provides a benchmark of value promotion that can be expected from SCSC announcements.Originality/valueThis study fills the research gap that using secondary data to assess changes in companies’ shareholder value caused by SCSC announcements and firstly examines these changes by constructing the signaler–signal–receiver progress based on signaling theory. The research results provide a new reference and inspiration for deeper understanding of the impact mechanism of SCSC. Furthermore, this study contributes to the development of the signaling theory using an empirical study in an emerging market, China.

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