scholarly journals FIRM SPECIFIC VARIATION IN RETURNS AND FUNDAMENTALS IN KOREA STOCK MARKET

2015 ◽  
Vol 60 (04) ◽  
pp. 1550092
Author(s):  
DOOWON LEE ◽  
M KABIR HASSAN ◽  
M ARIFUR RAHMAN
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Stock Price ◽  
Asian Financial Crisis ◽  
Present Value ◽  
Price Informativeness ◽  
Accounting Data ◽  
Specific Variation ◽  
Stock Price Informativeness ◽  
Korean Market

We explore the link between firm-specific variations in stock returns and firm fundamentals in the context of a simple present value framework and test the effect of market openness and firms' industry belonging on stock price informativeness in Korea. Using detailed accounting data and an extensive control for firm-specific characteristics, we find that alternative proxies of cash flow shocks explain a significant part of the variation in firm-specific returns. The effect, however, is not uniform across market sectors. Although greater foreign shareholding in a firm is important to establish a stronger positive linkage between cash flow shocks and stock returns variation prior to the Asian financial crisis, this condition is not necessary after the Korean market was fully opened up to the foreign investors in the post-crisis period.

THE "FIRM-SPECIFIC RETURN VARIATION": A MEASURE OF PRICE INFORMATIVENESS OR INFORMATION ASYMMETRY?

2005 ◽  
Vol 01 (01) ◽  
pp. 0550004
Author(s):  
RADU BURLACU ◽  
PATRICE FONTAINE ◽  
SONIA JIMENEZ-GARCÈS
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Stock Price ◽  
Rational Expectations ◽  
Expected Returns ◽  
Excess Returns ◽  
Price Informativeness ◽  
Common Stocks ◽  
Good Proxy ◽  
Stock Price Informativeness

This paper investigates the relevancy of the "Firm-Specific Return Variation" (FSRV) as a measure of stock price informativeness. For this purpose, we study the link between FSRV and stock excess returns on the American market over the period 1986–2001. After controlling for size effects, we find a negative and highly significant impact of FSRV on stock returns. The link between FSRV and stock excess returns is robust to asset pricing models and does not capture systematic, size or "book-to-market" (BM) effects. Based on rational expectations equilibrium (REE) models considering asymmetrically informed investors, we suggest that FSRV is a good proxy for price informativeness. Common stocks with higher specific return variation have lower information-risk premium, thus lower expected returns.

Corporate sustainability performance and informativeness of earnings

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jagjit Singh Saini ◽  
Mingming Feng ◽  
Jim DeMello
Keyword(s):  
Stock Returns ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Corporate Sustainability ◽  
Ordinary Least Squares ◽  
Mediating Effect ◽  
Price Informativeness ◽  
Content Type ◽  
Sustainability Performance ◽  
Stock Price Informativeness

PurposeWith the growing awareness about the environment and climate, sustainability has gained increased attention of investors. Many investors now factor in the long-term sustainability of successful and responsible companies when making their investment choices. The purpose of this paper is to investigate whether or not the sustainability performance of a company affects the informativeness of its earnings by exploring the mediating effect of sustainability performance on the association between stock returns and earnings changes.Design/methodology/approachUsing a sample of firms for the period 2009–2016 with available sustainability data from TruValue Labs' database, the authors investigate how the sustainability performance of a firm mediates the relationship between stock returns and earnings (changes). The authors use ordinary least squares (OLS) regressions to test their hypotheses.FindingsConsistent with the voluntary disclosure and environmental, social and governance (ESG) performance literature, the authors find that higher sustainability performance improves the stock price informativeness of earnings. The authors find evidence in support of increased earnings response coefficient with increased sustainability performance.Research limitations/implicationsThis study adds to the literature supporting the notion of sustainability investing indicating that sustainability performance of a firm affects the stock price informativeness and predictability of earnings (changes) of the firm.Originality/valueThis study has value for, both, investors and managers regarding the importance of sustainability performance of the firm. Sustainability performance of the firm sends signals to market participants, increasing the informational content of the reported earnings as well as predictability of future earnings.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

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