Directors’ trades in UK rights issues: do firms sell overvalued new equity?

2019 ◽  
Vol 18 (1) ◽  
pp. 113-133
Author(s):  
Heba Ahmed Abbas Ali
Keyword(s):  
Insider Trading ◽  
Stock Price ◽  
Abnormal Returns ◽  
Seasoned Equity Offerings ◽  
Sign Test ◽  
Cross Sectional ◽  
Content Type ◽  
Long Run ◽  
Timing Hypothesis ◽  
Rights Issues

PurposeThis paper aims to examine the behavioral timing hypothesis in the context of UK rights issues by seeking to establish and investigate inter-relationships between directors’ trading around rights issues as a proxy for stock mis-valuation and post-issue stock price performance.Design/methodology/approachThe cumulative average abnormal returns, the buy and hold abnormal returns, the standardized residual cross-sectionalt-test and the generalized sign test techniques.FindingsThe directors do possess short-term timing ability as they can identify profitable trading situations by buying more often before stock outperformance and by selling more often before stock underperformance. In addition, directors trading prior to the rights offering is found to exert an influence on the long-run abnormal returns of the rights-issuing firm, which supports the story that mis-valuation and behavioral timing are empirical.Research limitations/implicationsOther types of seasoned equity offerings rather than rights issues should be included.Practical implicationsThe research provides a direct testing for the strong form of market efficiency hypothesis, which enables policymakers to take into account market reaction to directors’ trades and how it is affected by corporate events (e.g. rights issues) when addressing insider trading regulations.Originality/valueThis study extends available literature in the context of both developed and emerging equity markets to testing the behavioral timing hypothesis by testing the inter-relationships between directors’ trading around rights issues and post-issue short- and long-run performance. To the best of the author’s knowledge, this is the first study that examines these inter-relationships in the UK context.

scholarly journals Insider Trading and the Classification of Seasoned Equity Offerings: Evidence from Taiwan

2017 ◽  
Vol 9 (5) ◽  
pp. 58 ◽  
Author(s):  
Han-Ching Huang ◽  
Hsiu-Hsin Chiu
Keyword(s):  
Insider Trading ◽  
Abnormal Returns ◽  
Seasoned Equity Offerings ◽  
Growth Potential ◽  
Equity Offerings ◽  
Announcement Effects ◽  
Cumulative Abnormal Returns ◽  
Long Run ◽  
The Impact

This paper investigates whether insider purchasing or selling before Season equity offerings (SEO) announcement have the impact on the cumulative abnormal returns (CAR) around SEO announcement in Taiwan. We find that there are negative announcement effects around the SEO announcement, which is not consistent with the argument that there are usually positive announcement effects around the SEO announcement in Taiwan. Moreover, long-run abnormal returns following SEOs are negative. Therefore, the motivation of SEO has changed from investment to overvaluation.. Although there is net buying prior to SEO announcement, the outside investors still regard SEO announcement as a signal of overvaluation instead of growth potential.

scholarly journals CEO-shareholder incentive alignment around SEOs

2015 ◽  
Vol 41 (1) ◽  
pp. 45-66
Author(s):  
Yilei Zhang ◽  
Yi Jiang
Keyword(s):  
Stock Price ◽  
Wealth Effect ◽  
Seasoned Equity Offerings ◽  
Equity Offerings ◽  
Equity Financing ◽  
Compensation Policy ◽  
Incentive Alignment ◽  
Content Type ◽  
Financing Decisions ◽  
Long Run

Purpose – The purpose of this paper is to examine CEO wealth changes around seasoned equity offerings (SEOs) to explore the shareholder-manager incentive alignment in major corporate equity financing decisions. Design/methodology/approach – The authors decompose CEO wealth into three major components: price effect, board compensation grant, and CEO’s own portfolio adjustment. The authors then compare SEO-event sample vs non-event samples; and evaluate the dynamic and long-run CEO wealth effect. Findings – The authors find when market reacts negatively to SEO announcement leading to losses in CEO’s existing firm-related wealth, CEO gets additional grants to offset the losses. Although this appears to be a rent-seeking activity, the authors find that the additional grants are mainly in the form of stock options which would have no value if stock price failed to pick up in the future. In this sense, the additional grants align the interests between shareholders and managers. Consistent with this argument, the authors show that the additional grants motivate CEOs to promote the stock performance, benefiting themselves as well as shareholders in the long-run. Originality/value – The study explicitly calculates the contribution of each wealth component to CEO total wealth effect. The results improve the understanding of CEO compensation policy change after major corporate event and contribute to the literature of the optimality explanation of prevailing compensation policy.

Stock price movements and trading behaviors around merger and acquisition announcements

2019 ◽  
Vol 15 (4) ◽  
pp. 593-610 ◽  
Author(s):  
Jin Young Yang ◽  
Reuben Segara ◽  
Jingwei Feng
Keyword(s):  
Stock Price ◽  
Abnormal Returns ◽  
Wealth Effects ◽  
Individual Investors ◽  
Cross Sectional ◽  
Foreign Investors ◽  
Content Type ◽  
Announcement Date ◽  
Target Firms ◽  
Price Movements

Purpose The purpose of this paper is to examine the relationship between price movements of target firms’ stocks and behaviors of local individual, local institutional and foreign investors in trading target firms’ stocks around mergers and acquisitions announcements in Korea. Design/methodology/approach This study uses event study methodology and cross-sectional regressions for abnormal returns. Findings Results reveal that the average abnormal return becomes significantly positive three days prior to the announcement date and becomes insignificant after the announcement date. Results also show that local individual investors tend to sell more intensely prior to announcements for target firms with larger wealth effects. In contrast, foreign investors tend to buy target stocks with larger wealth effects more intensely prior to the announcement date, and then they sell them more intensely in the post-announcement period. Originality/value This paper provides evidence that foreign investors are able to identify target stocks with large wealth effects prior to the announcement date and they realize short-term profits by selling them following the announcement.

The acquisition puzzle and mispricing: evidence of over-optimism

2014 ◽  
Vol 10 (4) ◽  
pp. 470-493 ◽  
Author(s):  
Ray Donnelly ◽  
Amir Hajbaba
Keyword(s):  
Abnormal Returns ◽  
Earnings Forecasts ◽  
Acquisition Performance ◽  
Content Type ◽  
Long Run ◽  
Target Company ◽  
Book To Market Ratio ◽  
Information Advantage ◽  
Timing Hypothesis ◽  
Direct Measures

Purpose – Researchers suspect that the overvaluation of equity issuing acquirers is a major cause of their subsequent post-event underperformance. Definitive conclusions regarding this overpricing hypothesis have not been possible since indicators of overpricing such as the book-to-market ratio and subsequent underperformance are open to alternative interpretations. The purpose of this paper is to corroborate or refute overvaluation as a driver of equity issuing acquirers’ subsequent underperformance. Design/methodology/approach – The literature has linked overvaluation of acquirers to over-optimistic expectations. The authors use analysts’ earnings forecasts to reflect the market's expectations. Over-optimism is indicated by subsequent earnings disappointments. The authors examine the relation between acquirers’ choice of payment method and their tendency to report disappointing earnings. The authors also examine the effect of including a more direct measure of over-optimism in a model to explain the long-run post-event buy-and-hold-abnormal returns of acquirers. Findings – The post-acquisition earnings of equity issuing acquirers disappoint more often than those of acquirers employing alternative financing methods. This relationship is confined to glamour acquirers. The ability of financing method to predict long-run post-acquisition performance is subsumed when direct measures of optimism are included in a model explaining long-run post-acquisition performance. This result is robust to controls for overpayment and other potential explanations of post-acquisition underperformance. Research limitations/implications – Acquirers’ management exploit their information advantage to exchange overvalued equity for the assets of the target company in accordance with Loughran and Ritter's (2000) behavioural timing hypothesis. Originality/value – The study provides new and unambiguous evidence that equity-issuing acquirers are optimistically priced at the time of acquisition.

scholarly journals STOCK MARKET REACTIONS TO MERGERS ANNOUNCEMENT: AN EMPIRICAL STUDY ON RECENT 2020’S INDIAN MEGA BANK MERGER

2020 ◽  
pp. 93-106
Author(s):  
Rajashree Upadhyay ◽  
Dr. Mahesh Kumar Kurmi
Keyword(s):  
Event Study ◽  
Stock Price ◽  
Banking Sector ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Secondary Data ◽  
Cross Sectional ◽  
Event Window ◽  
Bank Merger ◽  
Long Run

Mergers and acquisitions are being used as strategic tools by Indian Corporate houses especially by Indian banking sector during last three decades of post liberalization era. Banking Sector in India has witnessed a mega merger of 10 Indian public banks into four big banks with effect from 1st April 2020 which definitely attract attention of different stakeholder who are interested to know whether these tie up events are really helpful for improving present scenario of banking industry as well as economic condition of the country in long run. But our concern in this study is to figure out the changes that occurred in shareholders wealth of the acquiring firm in short run around the announcement of merger event by detecting the responses of the share prices of acquiring bank through the procedure of event study methodology. For this study, company specific and market specific secondary data have been collected from the official website of National Stock Exchange as these companies are actively traded on said exchange. To accomplish the objective of this study we relied on figure of Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR) for an event window of 41 days from day -20 to day +20. Return values have been statistically tested through cross sectional t-test. The notable finding of the research is that an under-reaction of market is observed before the announcement but the moment the announcement information becomes effective, investors start reacting from day +2 and the stock price jumps up, providing positive AARs to the investors. But after the positive respond to the merger information, finally investors have under-reacted to the event. CAARs figures also indicate the positive pattern of returns in the beginning of the event window but rapidly it becomes negative from day -16 to the last day of window that might be due to pandemic situation running throughout the world. KEYWORDS: Merger & Acquisition, Event Study, Stock Return, Abnormal Return, Banking Sector

The role of board gender on the profitability of insider trading

2014 ◽  
Vol 22 (3) ◽  
pp. 180-193 ◽  
Author(s):  
Tian Zhong ◽  
Robert Faff ◽  
Allan Hodgson ◽  
Lee J. Yao
Keyword(s):  
Insider Trading ◽  
Abnormal Returns ◽  
Cross Sectional ◽  
Content Type ◽  
Aggregated Data ◽  
Study Approach ◽  
Female Directors ◽  
Board Membership ◽  
Information Advantage ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of female board membership on the profitability of corporate insider purchases. Design/methodology/approach – The authors use a classic event study approach. They measure abnormal returns around the insider purchase events, and analyze the cross-sectional variation of this market impact in terms of female board membership, controlling for a range of other factors. Findings – The authors find a strong positive market reaction in the aggregated data, and after decomposing transactions according to gender, they find that the profitability of female directors is statistically indistinguishable from their male counterparts. Additionally, they find evidence that with more females sitting on the board, the profitability of the male directors decreases but the profitability of their female counterparts does not. Originality/value – The authors’ findings suggest that having females on the board increases corporate governance of male directors. The results also suggest that female directors are no less inclined to exploit the asymmetric information advantage provided by board membership.

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.

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.

Thanks, neighbor! Stock market experience around significant European tax cuts

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Huabing Wang ◽  
Anne Macy
Keyword(s):  
Stock Market ◽  
Spillover Effect ◽  
Abnormal Returns ◽  
The Other ◽  
Stock Index ◽  
Corporate Tax ◽  
Cross Sectional ◽  
Content Type ◽  
Study Approach ◽  
Tax Cuts

PurposeThis paper analyzes the effect of corporate tax cuts on the competitiveness of the tax-cutting countries and neighbor countries.Design/methodology/approachThis study utilizes four significant corporate tax reforms among the OECD countries in Europe that offer a one-time tax cut of 6% or more. The short-term event study approach examines the stock index reactions for both the tax-cutting countries and the other countries. Multivariate fixed-effect regressions are employed to study the cross-sectional variations in the non-tax-cut countries.FindingsThis paper finds positive excess returns for Slovakia and Germany around the tax-cut passage. Multivariate analysis of stock market reactions of the non-tax-cutting countries reveals some evidence supporting both the positive spillover effect and the negative competitive loss effect. More advanced countries are more likely to experience higher abnormal returns, while higher tax countries are more likely to suffer lower abnormal returns. Other factors identified that might have influenced the effect of a foreign tax cut include the existing trade flows with the tax-cutting countries, whether the country has a common currency and the export orientation of the economy.Research limitations/implicationsThe findings are subject to sample-size issues. The lack of results for the other two countries is due to complicating events, as suggested by the further investigation of concurrent news events around the event days.Practical implicationsThe simultaneous analysis of the reform countries and the other countries in the region suggests that policymakers need to consider the relative positioning of their country vs the other countries in terms of economic development and current tax burdens when determining the optimal policy for their country or to respond to the tax policy changes in the other countries.Originality/valueThis study offers empirical evidence regarding the effect of corporate tax changes on competitiveness through the lens of stock markets' reactions, which depend on the net results of the spillover gain vs the competitive loss.

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