scholarly journals Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors' Expectations

2006 ◽  
Vol 61 (2) ◽  
pp. 655-687 ◽  
Author(s):  
JOHN E. CORE ◽  
WAYNE R. GUAY ◽  
TJOMME O. RUSTICUS
Keyword(s):  
Stock Returns ◽  
Operating Performance

scholarly journals Institutional Investors and Hedge Fund Activism

2020 ◽  
Author(s):  
Simi Kedia ◽  
Laura Starks ◽  
Xianjue Wang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Operating Performance ◽  
Hedge Fund ◽  
Target Firms ◽  
Hedge Fund Activism ◽  
Institutional Shareholders

Abstract Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes.

Regulation and information asymmetry

2008 ◽  
Vol 16 (1) ◽  
pp. 59-76 ◽  
Author(s):  
Robyn McLaughlin ◽  
Assem Safieddine
Keyword(s):  
Information Asymmetry ◽  
Stock Returns ◽  
Operating Performance ◽  
Cost Benefit ◽  
Future Research ◽  
Information Asymmetries ◽  
Cross Sectional ◽  
Industrial Firms ◽  
Content Type ◽  
Regulated Utilities

PurposeThis paper seeks to examine the potential for regulation to reduce information asymmetries between firm insiders and outside investors.Design/methodology/approachExtensive prior research has established that there are substantial effects of information asymmetry in seasoned equity offers (SEOs). The paper tests for a mitigating effect of regulation on such information asymmetries by examining differences in long‐run operating performance, changes in that performance, and announcement‐period stock returns between unregulated industrial firms and regulated utilities that issue seasoned equity. The authors also segment the samples by firm size, since smaller firms are likely to have greater asymmetries.FindingsConsistent with regulated utility firms having lower levels of information asymmetry, they have superior changes in abnormal operating performance than industrial firms pre‐ to post‐issue and their announcement period returns are significantly less negative. These findings are most pronounced for the smallest firms, firms likely to have the greatest information asymmetries and where regulation could have its greatest effect.Research limitations/implicationsThe paper does not examine costs of regulation. Thus, future research could seek to measure the cost/benefit trade‐off of regulation in reducing information asymmetry. Also, future research could examine cross‐sectional differences between different industries and regulated utilities.Practical implicationsRegulation reduces information asymmetry. Thus, regulation or mandated disclosure may be appropriate in industries/markets where information asymmetry is severe.Originality/valueThis paper is the first to compare the operating performance of regulated and unregulated SEO firms.

Corporate Governance, Accounting Outcomes, and Organizational Performance

2007 ◽  
Vol 82 (4) ◽  
pp. 963-1008 ◽  
Author(s):  
David F. Larcker ◽  
Scott A. Richardson ◽  
I˙rem Tuna
Keyword(s):  
Principal Component Analysis ◽  
Corporate Governance ◽  
Organizational Performance ◽  
Executive Compensation ◽  
Stock Returns ◽  
Operating Performance ◽  
Principal Component ◽  
Institutional Ownership ◽  
Stock Ownership ◽  
Excess Stock Returns

The empirical research examining the association between typical measures of corporate governance and various accounting and economic outcomes has not produced a consistent set of results. We believe that these mixed results are partially attributable to the difficulty in generating reliable and valid measures for the complex construct that is termed “corporate governance.” Using a sample of 2,106 firms and 39 structural measures of corporate governance (e.g., board characteristics, stock ownership, institutional ownership, activist stock ownership, existence of debtholders, mix of executive compensation, and anti-takeover variables), our exploratory principal component analysis suggests that there are 14 dimensions to corporate governance. We find that these indices have a mixed association with abnormal accruals, little relation to accounting restatements, but some ability to explain future operating performance and future excess stock returns.

scholarly journals Asset growth and stock return: evidence in the Brazilian market

2018 ◽  
Vol 29 (78) ◽  
pp. 418-434
Author(s):  
Márcio André Veras Machado ◽  
Robert William Faff
Keyword(s):  
Risk Factor ◽  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Operating Performance ◽  
Growth Effect ◽  
Capital Investments ◽  
Limits To Arbitrage ◽  
Asset Growth

Abstract Empirical evidence suggests that firms which have experienced fast growth, through increased external funding and by making capital investments and acquisitions, tend to show bad operating performance and lower stock returns, whereas firms that have experienced contraction, through divestiture, share repurchase and debt retirement, tend to show good operating performance and higher stock returns. So, this study aimed to analyze the relationship between asset growth and stock return in the Brazilian stock market, and it tested the hypothesis that asset growth is negatively related to future stock return. To do this, the methodology was divided into 3 steps: verifying 1) if asset growth anomaly exists; 2) if this relation may be explained by the investment friction hypothesis and/or by the limits-to-arbitrage hypothesis; and 3) if asset growth is a risk factor or mispricing. In addition, the analysis was carried out both at a portfolio level and an individual assets level. The sample included all the non-financial firms listed at B3 from June 1997 to June 2014. As for the main results, this study found that the asset growth effect exists, both at the portfolio level and the individual assets level, although it is sensitive to the proxy. About the effect’s materiality, this study concluded that the asset growth effect is not economically relevant, since it is not observed in big firms, regardless of the proxy used, a fact that makes it difficult to explore this effect. Another finding is that the asset growth effect may not be related to the limits-to-arbitrage hypothesis and to the financial constraint hypothesis; also, this effect may be considered a risk factor, suggesting that the investment effect documented in the Brazilian stock market may be explained by the rational asset pricing perspective. Therefore, capital market professionals should take into account the asset growth factor in asset pricing models for better investment risk assessment.

Segment Profitability, Misvaluation, and Corporate Divestment

2007 ◽  
Vol 82 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Peter F. Chen ◽  
Guochang Zhang
Keyword(s):  
Information Asymmetry ◽  
Stock Returns ◽  
Financial Reporting ◽  
Operating Performance ◽  
Equity Value ◽  
Abnormal Stock Returns ◽  
Voluntary Commitment ◽  
Value Model ◽  
Market Misvaluation ◽  
Number Of Segments

This paper develops a theoretical model to explain corporate divestment in the context of accounting-based valuation and provides empirical evidence to support the model's predictions. Building on Zhang's (2000) real-options-based equity value model, we develop a model to explain why firms with multiple business segments may have incentives in financial reporting to shift earnings from one segment to another to influence market valuation. Cross-segment earnings shifting, however, causes information asymmetry about segmental performance, which leads to market misvaluation. Divestment arises as a voluntary commitment by (some) firms to not engage in segmental earnings manipulation, with the aim of restoring valuation accuracy. Our theoretical analysis yields a number of testable implications. Consistent with our model's predictions, we find empirically that (1) divestment is preceded by an increased divergence in profitability between the divested and continuing segments of the divesting firm, (2) there are positive abnormal stock returns surrounding divestment announcements that are not dependent on increased expectations about future operating performance, (3) the magnitude of market revaluation increases with the profitability divergence between the divested and continuing segments, and (4) market revaluation is greater for more complex firms (in terms of having a larger number of segments and greater uncertainty facing investors).

scholarly journals MANAJEMEN LABA, RETURN SAHAM, DAN KINERJA OPERASI SEBAGAI PEMODERASI

2017 ◽  
Vol 15 (2) ◽  
pp. 133
Author(s):  
Farid Addy Sumantri ◽  
Purnamawati .
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Initial Public Offering ◽  
Stock Return ◽  
Operating Performance ◽  
Abnormal Returns ◽  
Return On Assets ◽  
One Year ◽  
Public Offering ◽  
The Relationship

<p><em>The purpose of this study was to determine the indications of the practice of earnings management at the time of the IPO, one year after the IPO, and two years after the IPO. This study also examined the effect of earnings management on stock returns and operating performance in moderating the relationship between earnings management and stock returns.</em></p><p><em>The study sample comprised 33 firms that go public in the year 2007 to 2011 using a purposive sampling method. Earnings management is proxied by discretionary accruals using the Modified Jones Model, which used proxy for the stock return is cummulative abnormal returns (CAR), while for the company's operating performance used proxy for the return on assets (ROA).</em></p><p><em>The results showed that there were indications of earnings management at the time of the IPO, one year after the IPO, and two years after the IPO with a lower profit rate. No effect on earnings management is proxied by stock return cummulative abnormal returns (CAR). Operating performance of the company also can not moderate the relationship between earnings management with stock return.</em></p><p><em> </em></p><p><em>Keywords: Earning Management, Initial Public Offering, Cummulative Abnormal Return, </em><em>Return On Asset</em></p>

Operating Performance and Stock Returns of Firms Calling Convertible Preferred Stocks

2004 ◽  
Vol 31 (9-10) ◽  
pp. 1559-1576 ◽  
Author(s):  
Palani-Rajan Kadapakkam ◽  
Huey-Lian Sun ◽  
Alex P. Tang
Keyword(s):  
Stock Returns ◽  
Operating Performance
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