MANIPULATION AND EQUILIBRIUM AROUND SEASONED EQUITY OFFERINGS

2011 ◽  
Vol 10 (05) ◽  
pp. 771-792 ◽  
Author(s):  
YAN HAN ◽  
XIN CUI ◽  
ZHIMIN HUANG ◽  
ALLAN ASHLEY
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Stock Price ◽  
Seasoned Equity Offerings ◽  
Securities And Exchange Commission ◽  
Previous Literature ◽  
Equity Offerings ◽  
Price Informativeness ◽  
Significant Evidence ◽  
Stock Price Informativeness

There exists a widely held belief that informed investors manipulate stock prices prior to seasoned equity offerings (SEO). Contrary to this assertion, a model is developed, which demonstrates there is significant evidence that informed investors not to manipulate trading prior to a SEO. Furthermore, there is an arguement that informed investors to trade the stock in the same direction indicated by their private information. In addition, the model is consistent with previous empirical evidence. Previous literature heavily relies on the Gerard and Nanda (1993) model. The model allows for more than one informed investors, whereas Gerard and Nanda de facto allows for only one. This model setting is not only more realistic to the real world, but also dramatically reverses its conclusion that there exists manipulative trading. It also indicated that following Securities and Exchange Commission (SEC) Rule 10b-21 and Rule 105, whose intention is to curb this manipulation, the SEO discount will change in either direction. Thus previous literature delineating methodology of utilizing the SEO discount change to test for the existence of manipulative trading is not well grounded. The model also predicts that undervalued firms tend to disclose more information in order to improve the stock price informativeness, whereas overvalued firms tend to do the contrary.

scholarly journals Financial Literacy and Stock Price Informativeness: a Cross-Country Study

2018 ◽  
Vol 63 (1) ◽  
pp. 63-72
Author(s):  
Anita Todea
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Financial Literacy ◽  
Stock Price ◽  
Individual Investors ◽  
Specific Information ◽  
Price Informativeness ◽  
Stock Price Informativeness ◽  
The Individual ◽  
The Impact

Abstract This paper examines the impact of financial literacy on stock price informativeness in a sample of firms from 20 countries. Using four measures of stock price informativeness, we find a significant relationship between higher financial literacy and higher stock price informativeness. The individual investors’ contribution regarding the incorporation of specific information into stock prices includes private information also and not mere specific information in the general sense. Financial knowledge is the key element that helps individual investors to incorporate specific information into stock prices.

scholarly journals Culture and Stock Price Reaction to Private Information

2018 ◽  
Vol 11 (1) ◽  
pp. 117-130
Author(s):  
Anita Todea
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Stock Price ◽  
Financial Openness ◽  
Price Informativeness ◽  
Stock Price Reaction ◽  
Stock Price Informativeness ◽  
Developed Stock Markets ◽  
The Impact ◽  
Low Uncertainty

AbstractThis paper examines the impact of culture on stock price informativeness in a sample of firms from 23 developed stock markets. We find that the information content of private information in stock prices is higher in more individualistic countries and in low uncertainty-avoiding countries. Moreover, financial openness stimulates the incorporation of private information into individualistic countries and in low uncertainty-avoiding countries.

scholarly journals Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence

2010 ◽  
Vol 45 (5) ◽  
pp. 1189-1220 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Jie Gan ◽  
Ning Gao
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Stock Return ◽  
Empirical Support ◽  
Seasoned Equity Offerings ◽  
American Depositary Receipts ◽  
Equity Offerings ◽  
Price Informativeness ◽  
The Future ◽  
Depositary Receipts

AbstractThis paper argues that, contrary to the conventional wisdom, stock return synchronicity (or R2) can increase when transparency improves. In a simple model, we show that, in more transparent environments, stock prices should be more informative about future events. Consequently, when the events actually happen in the future, there should be less “surprise” (i.e., less new information is impounded into the stock price). Thus a more informative stock price today means higher return synchronicity in the future. We find empirical support for our theoretical predictions in 3 settings: namely, firm age, seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs).

Effect of Stock Price Information on Timing of Share Repurchases

2019 ◽  
Vol 4 (1) ◽  
pp. 36-46
Author(s):  
Chong-Meng Chee ◽  
Nazrul Hisyam Bin Ab Razak
Keyword(s):  
Cost Saving ◽  
Private Information ◽  
Stock Price ◽  
Stock Return ◽  
Market Timing ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Share Repurchases ◽  
Price Informativeness ◽  
Stock Price Informativeness

Objective - This study investigates whether private information newly incorporated into stock price enhances performance in timing share repurchases. Methodology/Technique - Cost saving gained in share repurchases is used a proxy for performance of market-timing in share repurchases and firm-specific stock return variation is used to gauge stock price informativeness. A sample of 334 U.S. repurchasing firms are tested using panel data regression. Findings - The paper concludes that managers possess better market timing skill by obtaining more cost saving from their share repurchases when private information is reflected in stock price. Stock price informativeness may be the tool for managers to improve their market timing skill to take advantage of the stock market. Furthermore, firms with smaller size and a higher market-to-book ratios, and firms with higher cash-to-assets ratios are found to achieve more cost saving in buying back their shares indicating that these firms are able to time the market in share repurchasing. Novelty – Despite numerous previous studies focusing solely on using share repurchases announcement for computing cumulative abnormal returns in testing managerial market timing, this study contributes to the literature in several ways: (i) providing evidence relating stock price informativeness and performance of market-timing in share repurchases; (ii) developing a better timing measure constructed using actual repurchasing data; (iii) adopting a cost saving measure as the timing measure instead of cumulative abnormal return. Type of Paper - Empirical. Keywords: Managerial Learning Hypothesis; Market Timing; Stock Repurchase; Stock Price Informativeness; Firm-specific Stock Return Variation. JEL Classification: G12, G13, G14. DOI: https://doi.org/10.35609/jfbr.2019.4.1(5)

The real effects of primary and secondary equity markets on firm performance

2017 ◽  
Vol 13 (4) ◽  
pp. 397-418 ◽  
Author(s):  
Andriansyah Andriansyah
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Operating Performance ◽  
Equity Markets ◽  
Secondary Market ◽  
Price Informativeness ◽  
Content Type ◽  
Real Effects ◽  
Stock Price Informativeness

Purpose The purpose of this paper is to investigate the real effects of primary and secondary equity markets on the post-issue operating performance of initial public offering (IPO) firms. Design/methodology/approach The author utilizes the intended use of proceeds as a proxy variable for the primary market and the investment-to-price sensitivity and the informativeness of stock prices as alternative proxy variables for the secondary market. The compositional data, and non-parametric quantile regressions which are more robust to outliers than standard least square regressions, are employed for Indonesian equity market over the period of 1999-2013. Findings While confirming that firm operating performance can be explained by the firm’s motivation to go public, the author also shows that the operating performance is positively affected by investment-to-price sensitivity and negatively affected by stock price informativeness. The stock prices affect investment decisions by the way that the more liquid a stock is, the more informative its price is, and the more relevant stock prices are in investment decisions. These findings still hold after controlling for ownership structure. Originality/value Departing from the existing literature, the author investigates the role of primary and secondary equity markets for firm performance in an integrated framework because both markets interact closely in reality. The author shows that public listed firms can benefit both from the capital-raising function of the primary market and from the informational role of the stock prices of the secondary market. A measure of stock price informativeness, 1−R2, however, must be understood in the context of thin trading in the sense that the level of liquidity affects the level of stock price informativeness.

scholarly journals Managerial Ability and Income Smoothing

2019 ◽  
Vol 95 (4) ◽  
pp. 1-22 ◽  
Author(s):  
Bok Baik ◽  
Sunhwa Choi ◽  
David B. Farber
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Cash Flows ◽  
Income Smoothing ◽  
High Ability ◽  
Managerial Ability ◽  
Price Informativeness ◽  
Future Performance ◽  
Stock Price Informativeness ◽  
Future Cash Flows

ABSTRACT In this study, we investigate whether managerial ability is related to income smoothing and, if so, whether smoothing associated with managerial ability improves the informativeness of earnings and stock prices about future performance. Using a large sample of firms, we find that managerial ability is positively related to smoothing. More importantly, we show that high-ability managers incorporate more forward-looking information about cash flows into current earnings through smoothing, thereby enhancing earnings informativeness. We also find that smoothing associated with high-ability managers improves stock price informativeness about future cash flows. Our study should be of interest to researchers, practitioners, and others concerned with understanding the determinants and usefulness of smoothing.

scholarly journals Corporate governance and the divergence of learning channels

2011 ◽  
Vol 8 (3) ◽  
pp. 9-17
Author(s):  
William Ming Yan Cheung ◽  
Adrian Lei ◽  
Libin Tao
Keyword(s):  
Corporate Governance ◽  
Stock Prices ◽  
Stock Price ◽  
Informed Trading ◽  
Market Liquidity ◽  
Price Informativeness ◽  
Cross Sectional ◽  
Bid Ask Spread ◽  
Trading Activities ◽  
Stock Price Informativeness

We study the relation between corporate governance, market liquidity and stock price informativeness. Firms with more informative stock prices are associated with larger transaction volume, larger bid-ask spread and better corporate governance. Thisliquidity-informativeness relation is significant for firms with high antitakeover provision (bad corporate governance). However, bid-ask spread is insignificantly associated withprice informativeness for firms with less antitakeover provision (good corporate governance). This supports that firm-specific return variation better measures stock price informativeness when firm has strong corporate governance framework. Our results suggest that (i) more (less) informed trading activities associated with weak (strong) corporate governance, and (ii) corporate governance explains the cross-sectional variation in information efficiency of stock prices. Our results are consistent with theories in financial market learning that investor learn from informed trading activities associated with weak governance firms and informative disclosure from strong governance firms.

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