The moderating effects of leverage and marketing intensity on alliance formation announcements

2019 ◽  
Vol 58 (4) ◽  
pp. 773-785 ◽  
Author(s):  
Malika Chaudhuri ◽  
Jay Janney ◽  
Roger J. Calantone
Keyword(s):  
Abnormal Returns ◽  
Market Model ◽  
Alliance Formation ◽  
Exploration And Exploitation ◽  
Market Reactions ◽  
Content Type ◽  
Explanatory Variables ◽  
Different Types ◽  
Marketing Activities ◽  
Marketing Intensity

Purpose March’s 1991 work on exploitation and exploration has been studied in many different industries. The purpose of this paper is to analyze signals emanating from exploration and exploitation alliances within the pharmaceutical industry context. Specifically, the authors explore market reactions to announcements of alliance formations based not only on alliance type but also in terms of their marketing intensity and leverage. Design/methodology/approach The authors employ a two-stage event-study market model using a two-day event window (event days 0, +1), creating cumulative abnormal returns (CARs). In the second stage, the authors regress the CARs against an array of control and explanatory variables. Findings Findings suggest that even though firm announcements of exploration and exploitation formations initially generate favorable market reactions, the former has a greater impact on CAR relative to the latter. Furthermore, leverage and marketing intensity moderate the relationship between firms’ alliance formation announcements and CARs generated. In particular, firms’ alliance formation announcements generate relatively greater market reactions at lower (higher) levels of the firm’s leverage (market intensity). Research limitations/implications Event studies are valuable for gauging initial impressions of management action, but they are not meant to address long-term value creation. While market reactions suggest the likelihood of an alliance’s success or failure, managers also assess the risk to a firm’s financial health should the alliance fail. As a result, announcements that signal the firm has discretionary capabilities to ameliorate the effect of a failed alliance are better received. Originality/value This study is the first to analyze the stock market’s perception and valuation of different types of risk, classified by exploration vs exploitation alliances. The study also contributes to the literature by analyzing how investors use the information about a firm’s financial leverage and marketing activities to fine-tune their valuation of different types of risk-taking activities.

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.

scholarly journals Do all CSR news affect market value equally?

2019 ◽  
Vol 16 (8) ◽  
pp. 1107-1123
Author(s):  
Andrea Pérez ◽  
Carlos López-Gutiérrez ◽  
María del Mar García de los Salmones
Keyword(s):  
Media Coverage ◽  
Design Methodology ◽  
Abnormal Returns ◽  
Market Value ◽  
Market Reactions ◽  
Content Type ◽  
Different Types ◽  
Corporate Social ◽  
The Impact ◽  
Managerial Perspective

Purpose The purpose of this study explores the effects that media coverage of corporate social responsibility (CSR) news related to primary stakeholders (e.g. customers, employees and investors) and secondary stakeholders (e.g. community) have on the market value of companies, measured as the impact generated in the positive and negative abnormal returns for those companies. Design/methodology/approach Using a sample of 195 online papers published in the most important Spanish business newspaper during 2015, the authors implement an event study and a regression analysis that confirm the importance of CSR news for corporate financial goals. Findings The findings show that negative CSR news related to primary stakeholders such as investors and customers generate significant abnormal returns for companies that are notably larger than the abnormal returns generated by secondary stakeholders (e.g. community). Similarly, positive news related to primary stakeholders such as employees are the only positive news that affect market reactions significantly. Originality/value The study provides an empirical analysis that clarifies how media coverage of different types of CSR news affect the market value of companies. In doing so, the paper contributes to previous literature significantly because scant research exists that has compared the differential effects of CSR news focused on primary and secondary stakeholders. The findings are discussed under the premises of the managerial perspective of stakeholder theory.

Market reactions to the inclusion of people with disabilities

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Claudia Araceli Hernández González
Keyword(s):  
Event Study ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
People With Disabilities ◽  
Market Reactions ◽  
Content Type ◽  
Study Methodology ◽  
Research Advance ◽  
The Impact

PurposeThis study aims to provide evidence of market reactions to organizations' inclusion of people with disabilities. Cases from financial journals in 1989–2014 were used to analyze the impact of actions taken by organizations to include or discriminate people with disabilities in terms of the companies' stock prices.Design/methodology/approachThis research is conducted as an event study where the disclosure of information on an organization's actions toward people with disabilities is expected to impact the organization's stock price. The window of the event was set as (−1, +1) days. Stock prices were analyzed to detect abnormal returns during this period.FindingsResults support the hypotheses that investors value inclusion and reject discrimination. Furthermore, the impact of negative actions is immediate, whereas the impact of positive actions requires at least an additional day to influence the firm's stock price. Some differences among the categories were found; for instance, employment and customer events were significantly more important to a firm's stock price than philanthropic actions. It was observed that philanthropic events produce negative abnormal returns on average.Originality/valueThe event study methodology provides a different perspective to practices in organizations regarding people with disabilities. Moreover, the findings in this research advance the literature by highlighting that organizations should consider policies and practices that include people with disabilities.

Announced versus canceled bank mergers and acquisitions

2016 ◽  
Vol 17 (5) ◽  
pp. 510-544 ◽  
Author(s):  
Armin Varmaz ◽  
Jonas Laibner
Keyword(s):  
Mergers And Acquisitions ◽  
Shareholder Value ◽  
Abnormal Returns ◽  
Bank Mergers ◽  
Cross Sectional ◽  
Market Reactions ◽  
Content Type ◽  
European Bank ◽  
Long Time ◽  
Loan Losses

Purpose This paper aims to empirically analyze the success of European bank mergers and acquisitions (M&As) by an analysis of the shareholder value implications of stock market reactions to announced and canceled M&As in the period from 1999 to 2015. Design/methodology/approach The analysis of a sample of 467 announced and 54 canceled European bank M&As is conducted using event study methodology. The determinants of the shareholder value creations in M&A are observed in cross-sectional regressions. The likelihood of M&As being canceled is estimated in logit regressions. Findings The paper finds that European bank M&As have not been successful in terms of shareholder value creation for acquiring banks, whereas targets experienced significant value gains. Abnormal returns for bidders and targets exhibit the same characteristics upon the announcement of M&As that are canceled at a later date, whereas the results for transaction cancelations deviate. Targets experience negative abnormal returns at a larger size than upon the transaction announcement. The findings for bidders are striking, as they destroy shareholder value upon the transaction cancelation, also, consequently they suffer twice. In particular, banks with higher profitability, higher efficiency and lower liquidity experience negative abnormal returns around the announcement dates. Negative abnormal returns prior to the transaction announcement and provision for loan losses increase significantly the likelihood of M&A cancelation. Originality/value This paper contributes to the literature expanding existing analyses to the shareholder value implications of canceled European bank M&As in a 17-year long time period. The findings reveal the destructive characteristics of canceled bank M&As and provide innovative insights into European capital market reaction to canceled M&As.

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.

CEO social capital and asset sell-offs

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Charles Danso ◽  
Margarita Kaprielyan ◽  
Md Miran Hossain
Keyword(s):  
Decision Making ◽  
Social Capital ◽  
Information Asymmetry ◽  
Abnormal Returns ◽  
Chief Executive ◽  
Multivariate Regression Analysis ◽  
Market Model ◽  
Good Decision ◽  
Content Type ◽  
Announcement Returns

PurposeRecent studies explore how chief executive officer (CEO) social capital affects corporate decision-making. Well-connected CEOs can have greater access to information, which can lead to better corporate decisions or permit them to amass power from hierarchy status and make self-serving decisions. This study examines whether investors perceive CEO social capital as a signal of good decision-making (assuming information asymmetry) surrounding asset sell-off events.Design/methodology/approachThe authors use multivariate regression analysis to examine the effect of CEO social capital on the cumulative abnormal returns (CARs) of the asset buyers and sellers. CARs are estimated using a market model in the period proximate to asset sell-off announcements.FindingsThe authors find that CEO social capital is positively associated with announcement returns of the asset sellers. Moreover, the positive effect of CEO social capital on announcement returns is more pronounced for sellers facing greater information asymmetry. An analysis of post-announcement stock performance reveals that the seller CEO social capital is associated with additional value generated for the shareholders of the seller after a month from the announcement date, especially if the transaction price is disclosed. Overall, findings are consistent with the argument that CEO social capital provides value in high information asymmetry environment.Originality/valueTo the authors' knowledge this is the first study to examine the effect of CEO social capital on the shareholders' wealth created by divestitures.

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.

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.

Equal opportunity market

2019 ◽  
Vol 18 (3) ◽  
pp. 508-531
Author(s):  
Jennifer Bannister ◽  
Li-Chin Jennifer Ho ◽  
Xiaoxiao Song
Keyword(s):  
Stock Returns ◽  
Market Reaction ◽  
Information Environment ◽  
Market Model ◽  
Foreign Firms ◽  
Market Reactions ◽  
Analyst Following ◽  
Distance Information ◽  
Content Type ◽  
Domestic Firms

Purpose This paper aims to compare US market reactions to the restatement announcements of foreign firms listed in the USA and those of US firms by applying the Capital Market Liability of Foreignness (CMLOF) concept. It further investigates the incremental effect of an improved information environment, proxied by analyst following, on mitigating the negative market reaction to a restatement for foreign vs domestic firms. Design/methodology/approach Regression tests are performed on a matched-sample, which matches foreign and domestic firms based on industry and firm size. Market reaction is defined as three-day abnormal stock returns calculated using a market model. The sources of CMLOF are defined as institutional distance, information costs, unfamiliarity costs and cultural distance. Findings Results suggest that, on average, the magnitude of the market reaction to a restatement is 1.8 per cent lower for foreign firms than for domestic firms. Information and unfamiliarity costs contribute to the differing market reactions. In addition, it appears that the improved information environment created by a higher analyst following is more important for foreign firms who face CMLOF than for domestic firms. Originality/value While prior research establishes a negative market reaction to restatement announcements, comparing the market reactions for foreign and domestic firms provides evidence regarding whether US investors treat foreign and domestic firms differently. Additionally, to the best of the authors’ knowledge, this is the first study that examines CMLOF using restatement announcements.

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.

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