The change in investor reaction to 10-K filings after Regulation Full Disclosure and the Sarbanes–Oxley Act

2019 ◽  
Vol 46 (1) ◽  
pp. 120-138
Author(s):  
Rakesh Bharati ◽  
Susan Crain ◽  
Shrikant Jategaonkar
Keyword(s):  
Stock Price ◽  
Financial Reports ◽  
Full Disclosure ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Risk Adjustment Model ◽  
Long Run ◽  
One Year ◽  
The Impact ◽  
Investor Reaction

Purpose The purpose of this paper is to examine whether the investor reaction to 10-K filings has changed since the implementation of Regulation Full Disclosure (FD) and the Sarbanes–Oxley Act (SOX) and examine whether the market still underreacts to 10-K content and exhibits the continuation of filing day returns (FDRs) documented by You and Zhang (2009) after the passage of these regulations. Design/methodology/approach The sample consists of 39,270 10-K filings over the sample period of 1996 to 2012. Performance of portfolios created based on FDRs around 10-K filings is examined. Regression models are used for multivariate analysis. Carhart αs are obtained using the four-factor risk adjustment model. Findings By comparing investor reaction to 10-K filings pre- and post-regulation, the paper shows a significant change in stock price behavior since the implementation of FD and SOX. Analogous to Burks (2011), results suggest improved price efficiency around 10-K filings. In the long-run of up to one year following the filing, the continuation of FDRs documented by You and Zhang (2009) disappears post-2000, especially after the implementation of SOX. Overall findings suggest that investors price the information in 10-K filings significantly differently after FD and SOX than before. Research limitations/implications The sample ends in 2012. Therefore, this study does not examine the implications of the Dodd-Frank Act. Originality/value The paper contributes to the literature related to the impact of FD and SOX and market reaction to filings of financial reports. The current literature documents that there is a continuation of FDRs up to a year. This paper shows that the continuation has disappeared since FD and SOX were implemented.

The impact of Iran Central Bank’s sanction on Tehran Stock Exchange

2017 ◽  
Vol 59 (3) ◽  
pp. 365-375 ◽  
Author(s):  
Mahdi Salehi ◽  
Mostafa Karimzadeh ◽  
Navid Paydarmanesh
Keyword(s):  
Central Bank ◽  
Stock Price ◽  
Negative Impact ◽  
Stock Exchange ◽  
Oil Prices ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
The Impact ◽  
Positive Effect

Purpose US sanctions have been a major feature of US Iran policy since Iran’s 1979 Islamic revolution, but the imposition of UN and worldwide bilateral sanctions on Iran that began in 2006 and increased dramatically as of 2010 is recent by comparison. The objectives of US sanctions have evolved over time. Broad international sanctions imposed on Iran harmed Iran’s economy and contributed to Iran’s acceptance of agreements that exchange constraints on its nuclear program for sanctions relief. The subject of this study is important because both Iran and the international communities are demanding for information about the effect of sanctions on Iran. In an international and regional perspective, it seems that sanctions have a negative impact on economic, social and even political status of Iran. Therefore, this paper aims to examine the impact of Iran Central Bank sanction on Tehran Stock Exchange as on December 31, 2011. Design/methodology/approach Variables of model are consisted by exchange rate, oil prices and Tehran Stock Exchange Price Index (TEPIX) from October 2, 2011 to March 29, 2012, which is offered daily. To analyze the model, the authors used Johansen–Juselius and Autoregressive Distributed Lag (ARDL) methods. Findings The results indicate that there is a long-run equilibrium relationship between selected variables as oil prices, and exchange rates have a positive effect on the TEPIX. In other words, the results of the econometric estimation show the positive effect of the Iran Central Bank sanction on the TEPIX. Thus, because of economic sanctions imposed by the Western countries, Tehran Stock Exchange has been growing. Originality/value No empirical research exists that examines the impact of sanctions on stock price in developing countries. This study fills this gap by examining the links between sanctions and stock price in Iran.

Investor reaction to R&D investment

2016 ◽  
Vol 8 (2) ◽  
pp. 133-147
Author(s):  
Xin Li ◽  
Tienan Wang
Keyword(s):  
Stock Price ◽  
New Product ◽  
Content Type ◽  
Innovation Activities ◽  
Development Capacity ◽  
The Impact ◽  
D Investment ◽  
Investor Reaction ◽  
Positive Effect

Purpose This paper aims to examine the impact of research and development (R&D) investment on firms’ stock price from the perspective of investors. Design/methodology/approach Building on signaling theory, the authors propose that R&D investment sends important signals to the investment community regarding future growth, which in turn impacts investor reaction to such investment. Findings Using a sample of listed pharmaceutical firms in China from 2007 to 2011, the authors find that R&D investment has a positive effect on firms’ stock price, indicating that investors have a positive reaction to R&D investment signals. Further, the authors find that the signaling role of new product announcements mediates this relationship between R&D investment and investor reaction. Originality/value The authors also find that the signaling role of development capacity (DC) has a moderating effect on the relationship between innovation activities (i.e. R&D investment and new product announcements) and investor reaction, such that DC strengthens the positive effect of R&D and new product announcements on investors.

Insights from the failure of the Countrywide Financial Corporation

2014 ◽  
Vol 10 (1) ◽  
pp. 115-136
Author(s):  
Willoe Freeman ◽  
Peter Wells ◽  
Anne Wyatt
Keyword(s):  
Financial Distress ◽  
Financial Management ◽  
Stock Price ◽  
Future Research ◽  
Financial Risks ◽  
Asset Securitization ◽  
Mortgage Loans ◽  
Financial Reports ◽  
Content Type ◽  
The Impact

Purpose – This paper aims to evaluate the business activities, financial reports, and management compensation practices of Countrywide Financial Corporation (Countrywide) in the period preceding the company's financial distress and leading to its eventual takeover by Bank of America in 2008. This analysis provides a number of insights into the risks that Countrywide was exposed to which may guide future research and financial management. Design/methodology/approach – Case study evaluating the failure of Countrywide Financial Corporation. Findings – First, Countrywide was highly reliant upon the securitization of mortgage loans to finance its activities and this was apparent in the financial reports. Second, these securitization transactions exposed Countrywide to significant financial risks, including the risk inherent in the uncertain values of residual interests and warrantees. Problematically, these risks were not transparently reflected in the financial reports, as confirmed by the lag in the timing of stock price responses. This untimely market response suggests the equity market was not aware of Countrywide's risk exposures until shortly before the company's solvency crisis. Third, the compensation practices of Countrywide encouraged and rewarded management for exposing the firm to significant risks. Practical implications – This paper provides insights into financial management that are relevant for researchers and professionals. Originality/value – This paper provides insights for researchers and practitioners relating to the impact of asset securitization on business risk and how these business activities and risks are disclosed in the financial reports.

Marketing spending and aftermarket performance of IPO firms

2017 ◽  
Vol 35 (4) ◽  
pp. 560-576 ◽  
Author(s):  
Monica B. Fine ◽  
Kimberly Gleason ◽  
Michael Mullen
Keyword(s):  
Initial Public Offerings ◽  
Stock Price ◽  
Market Conditions ◽  
Content Type ◽  
Price Performance ◽  
Long Run ◽  
Short Run ◽  
Marketing Expenditures ◽  
Marketing Spending ◽  
The Impact

Purpose Increasingly, marketing managers are asked to consider the financial implications, in terms of both book and market values, when making strategic decisions. The purpose of this paper is to investigate the role of marketing expenditures in explaining the variation in the aftermarket performance of a sample of firms conducting initial public offerings (IPOs). Design/methodology/approach Theories from marketing and finance – market-based assets (MBA) theory and signaling theory respectively – serve as the conceptual basis of this paper. The results of this study, based on a sample of 2,103 IPOs covering the 1996 to 2008 time period, suggest that increased marketing spending positively impacts aftermarket (i.e. stock price) performance. Findings The authors find that while short-run aftermarket performance is positively and significantly impacted by pre-IPO marketing spending, long-run firm performance measures do not appear to be impacted by pre-IPO marketing spending. Further, pre-IPO marketing spending does not incrementally reduce underpricing or improve long-run performance when the IPO takes place during extreme market conditions such as recessions or hot markets, and these results are important to the shareholders and potential investors in the firm. Research limitations/implications Theoretically this paper advances the literature on the marketing-finance interface by extending the MBA and signaling theories. For practice, the results indicate that spending more money on marketing before the IPO and disclosing this information produces positive bottom-line results for the firm. Originality/value While Luo (2008) documents a significant relationship between the firms’ pre-IPO marketing spending and IPO underpricing, few studies explore the impact of marketing spending on stock price performance beyond the first day of trading. This paper makes three unique contributions. First, the authors extend Luo’s study by investigating the effect of marketing expenditures on underpricing during extreme market conditions. Second, the authors are the first to examine IPO performance in the long-run as well as the short-run. Finally, the authors assess how long-run performance is impacted by marketing spending during extreme market conditions. The findings of this study has implications for managers and shareholders of firms considering going public through a traditional IPO.

Riding the waves of change: story of Brunes Ltd

2016 ◽  
Vol 6 (2) ◽  
pp. 1-25
Author(s):  
Vasilika Kume ◽  
Ana Tomovska Misoska ◽  
Predrag Djordjevic
Keyword(s):  
Strategic Management ◽  
Undergraduate Students ◽  
Subject Area ◽  
City Centre ◽  
Communist Country ◽  
Content Type ◽  
Long Run ◽  
Master Level ◽  
One Year ◽  
The Impact

Subject area Strategic management, HR Management, Change management, Marketing. Study level/applicability Potential audience. This case will serve to undergraduate students, master level students, in the subjects, entrepreneurship, managing change, marketing, H&R management, strategic management. Case overview The Brunes Company was founded in 1994 by Gerond Cela and his brother, with the goal to provide quality products for bathrooms in the then-emerging Albanian market. During the next few years, it had grown into one of the biggest wholesale and retail chains in Albania, with huge portfolio of goods for home refurbishing. The beginnings were very humble. Armed only with the high school diploma in textile trading, born and raised in an ex-communist country without developed entrepreneurship culture, Gerond set off to Italy, a popular destination for young Albanians who were looking for an opportunity to escape the pitfalls of the post-communist transitional economy. Gerond recognized the huge gap in the market for imported tiles in his home country, so he began importing quality Italian tiles in 1994. Initially, he was doing the wholesale from his truck, due to the lack of retail stores. He focused on increasing customer satisfaction and built the company name as trustful provider of quality goods. This strategy brought him less profit, but his long-term goal was to build the company name and to establish it as a trustful provider of quality goods. In 1999, he bought 18,000 m2 (for 50.000 euro) land on the highway Tirana-Durres, 7 km from the city centre, which proved to be extremely worthwhile in the long run because the price of the land had skyrocketed up to ten times during the next decade, due to the economic development of Albania. In 2004, Gerond and his brother epitomized their business idea. They entered the market of home furniture. In 2009, the company expanded further in country towns like Lezha, Saranda and Fier. After two decades of establishing his company as a market leader with approximately 30 per cent of market share, Brunes Company is at the crossroads. On one hand, it is pressured by very stiff competition in the form of their main competitor Delta Home, which succeeded in taking 10-15 per cent of the marketing just in one year. On the other hand, the company has been stagnating for some period without a concrete plan to overcome this problem, as well as without a clear strategy for the future directions of the expansion. To diversify the company’s portfolio, Gerond built a factory for tiling accessories which will cost 8 million Euros and employs about 30 workers. Expected learning outcomes Specific objectives of the case are as follows: to portray individuals who became successful primary through their leadership abilities, and to examine how their experiences and values contributed to the success of their business; illustrate the impact on operations of an increasingly competitive environment and how this environment affects the need for a change in strategy; identify the challenges of selling luxury goods in a competitive retail environment; to assist students to critically think about diversification strategy; to gain an understanding how to adapt to change; to discuss for issues that must be changed (culture, people, technology, values and philosophy of leadership, marketing, business model), to grow. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 11: Strategy

Best-value supply chains and firms’ competitive performance: empirical studies of their linkage

2015 ◽  
Vol 35 (12) ◽  
pp. 1688-1709 ◽  
Author(s):  
Xun Li ◽  
Qun Wu ◽  
Clyde W. Holsapple
Keyword(s):  
Supply Chains ◽  
Competitive Advantage ◽  
Empirical Studies ◽  
Abnormal Returns ◽  
Competitive Performance ◽  
Content Type ◽  
Long Run ◽  
Best Value ◽  
Multiple Method ◽  
The Impact

Purpose – Best-value supply chains characterized by agility, adaptability, and alignment, have become a crucial strategic means for firms to create and sustain competitive advantage in today’s turbulent environment. The purpose of this paper is to investigate linkage between best-value supply chains and firms’ competitive performance. Design/methodology/approach – In Study 1, survey data from 76 firms is used to test the impact of the three qualities of best-value supply chains on firms’ competitive performance. In Study 2, to test if a firm’s competitive advantage can be sustained through building best-value supply chains, a long-run performance analysis is conducted, which is based on a stock portfolio of firms identified from the American Marketing Association’s annual list of “Supply Chain Top 25.” Findings – The results of Study 1 indicate that the three qualities of best-value supply chains are positively related to firms’ competitive performance. The results of Study 2 show that firms having best-value supply chains generate significant and positive abnormal returns for shareholders over time. Originality/value – This is a multiple-method research, providing two-level empirical evidence to the investigation of theoretical linkage between best-value supply chains and firms’ competitive performance.

Audit quality within adverse selection markets

2016 ◽  
Vol 24 (1) ◽  
pp. 2-18 ◽  
Author(s):  
Bharat Sarath
Keyword(s):  
Private Information ◽  
Stock Price ◽  
Audit Quality ◽  
Information Economics ◽  
Economic Market ◽  
Financial Reports ◽  
Content Type ◽  
General Terms ◽  
Audit Regulation ◽  
Short Run

Purpose – Auditing may be viewed as an arrangement for reducing inefficiencies arising from the fundamental market conflict between a seller who wants as high a price as possible and a buyer who wants to pay as low a price as possible. In more general terms, sellers prefer policies that boost the stock price in the short run whereas buyers would prefer the price to peak when they are ready to sell some time in the future. By framing audited financial reports within this context, the purpose of this paper is to provide some insights regarding both audit institutions and audit regulation. Design/methodology/approach – This paper relies on conceptual arguments and a simple analytical model. Findings – The basic findings are that a unique definition of audit quality is not compatible with the economics of a market where there are conflicts across traders as well a possibility that some traders hold superior information to others. Even an identification of quality with accuracy fails in this setting of conflict. The inference is that audit quality should be approached from a multi-dimensional perspective rather than a unique measure. Research limitations/implications – While the paper points out difficulties in constructing measures of audit quality extant in the literature, it does not provide any clear empirical suggestions for better measures. Originality/value – The paper brings back into focus issues from information economics that form the bedrock for the study of audited financial statements in equity markets. While the paper is partially a survey and synthesis of some of the latest empirical findings, it describes them within the context of a rational economic market where traders may possess private information. Within such a market, the paper outlines both the conflicts and the benefits inherent to the current institutional arrangements where auditors are paid by incumbent shareholders and overseen by regulators.

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.

Does the second wave of COVID-19 undermine corporate immunity? International evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Huy Viet Hoang ◽  
Cuong Nguyen ◽  
Khanh Hoang
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Fixed Effects ◽  
Management Strategies ◽  
The United States ◽  
Least Square ◽  
Content Type ◽  
The Impact ◽  
Second Wave ◽  
Practical Implications

PurposeThis study compares the impact of the COVID-19 pandemic on stock returns in the first two waves of infection across selected markets, given built-in corporate immunity before the global outbreak.Design/methodology/approachThe data are collected from listed firms in five markets that have experienced the second wave of COVID-19 contagion, namely the United States (US), Australia, China, Hong Kong and South Korea. The period of investigation in this study ranges from January 24 to August 28, 2020 to cover the first two COVID-19 waves in selected markets. The study estimates the research model by employing the ordinary least square method with fixed effects to control for the heterogeneity that may confound the empirical outcomes.FindingsThe analysis reveals that firms with larger size and more cash reserves before the COVID-19 outbreak have better stock performance under the first wave; however, these advantages impede stock resilience during the second wave. Corporate governance practices significantly influence stock returns only in the first wave as their effects fade when the second wave emerges. The results also suggest that in economies with greater power distance, although stock price depreciation was milder in the first wave, it is more intense when new cases again surge after the first wave was contained.Practical implicationsThis paper provides practical implications for corporate managers, policymakers and governments concerning crisis management strategies for COVID-19 and future pandemics.Originality/valueThis study is the first to evaluate built-in corporate immunity before the COVID-19 shock under successive contagious waves. Besides, this study accentuates the importance of cultural understanding in weathering the ongoing pandemic across different markets.

Foreign capital inflows and economic growth: the experience of low-income countries in Sub Saharan Africa

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Atif Awad
Keyword(s):  
Low Income ◽  
Foreign Capital ◽  
Ordinary Least Squares ◽  
Capital Inflows ◽  
Sub Saharan Africa ◽  
Low Income Countries ◽  
Content Type ◽  
Long Run ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose This paper aims to investigate the long-run impact of selected foreign capital inflows, including aid, remittances, foreign direct investment (FDI), trade and debt, on the economic growth of 21 low-income countries in the Sub Saharan Africa (SSA) region, during the period 1990–2018. Design/methodology/approach To obtain this objective and for robust analysis, a parametric approach, which was dynamic ordinary least squares, and a non-parametric technique, which was fully modified ordinary least squares, were used. Findings The results of both models confirmed that, in the long run, trade and aid affected the growth rate of the per capita income in these countries in a positive way. However, external debt seemed to have an adverse influence on such growth. Originality/value First, this is the initial study that has addressed this matter across a homogenous group of countries in the SSA region. Second, while most of the previous studies regarding capital inflows into the SSA region have focused on the impact of only one or two aspects of such foreign capital inflows on growth, the present study, instead, examined the impact of five types of foreign capital inflows (aid, remittances, FDI, trade and debt).

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