scholarly journals Information Content of Dividend Changes in an Emerging Market

2004 ◽  
Author(s):  
Nur Adiana Hiau Abdullah ◽  
Rosemaliza Abdul Rashid ◽  
Yusnidah Ibrahim
Keyword(s):  
Cash Flow ◽  
Emerging Market ◽  
Abnormal Returns ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Market Reactions ◽  
Dividend Announcements ◽  
Stock Market Reactions ◽  
Relationship Of

Supports on the free cash flow and agency cost theory from dividend announcements studies have been heavily discussed in the Western literature, but they have not been given much attention in the Asian countries, particularly in Malaysia. This paper focuses on examining the relationship of the stock market reactions due to dividend announcements and ten company-specific variables identified from the literature as potential determinants. The results from cross-sectional and stepwise regressions both showed that none of the determining variables could explain the variation in cumulative abnormal returns (CARs) for the increasing dividend announcements. For decreasing dividend announcements, both regressions identified the degree of anticipation to be significant and inversely related to CARs. In addition, the indigenous population ownership, which is a unique characteristic of the Malaysian equity market is also found to be significant in influencing the effect of decreasing dividend announcements. The findings provide no support for the free cash flow and agency cost theory.  

scholarly journals The Effect of Dividend Announcements on Stock Returns for Companies Listed on the Main Board of the Kuala Lumpur Stock Exchange

2020 ◽  
Author(s):  
Nur-Adiana Hiau Abdullah ◽  
Rosemaliza Abdul Rashid ◽  
Yusnidah Ibrahim
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Emerging Market ◽  
Abnormal Returns ◽  
Developed Countries ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Market Reactions ◽  
Dividend Announcements ◽  
Dividend Increases

Stock market reactions to the announcements of final dividend increases, decreases and no changes are empirically analyzed in an emerging market environment. A standard event study methodology is adopted to examine the price reactions of 120 listed companies surrounding sixty days of the announcement dates. Although prior studies in developed countries postulate that dividend decreases are associated with negative abnormal returns, such a reaction was not found in the Malaysian capital market. The evidence nevertheless shows that dividend increases lead to positive abnormal returns, supporting the Information Content Hypothesis, Jensen :s Free Cash Flow Hypothesis and Agency Cost Theory. As for the no change dividend announcements, no clear pattern of cumulative average abnormal returns could be observed.  

scholarly journals Does Leverage Constrain Real and AEM Around IPO Corporate Event? Evidence from the Emerging Market

2019 ◽  
Vol 20 (2) ◽  
pp. 354-367
Author(s):  
Sani Hussaini Kalgo ◽  
Bany-Ariffin A.N. ◽  
Hairul Suhaimi Bin Nahar ◽  
Bolaji Tunde Matemilola
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Emerging Market ◽  
Order Theory ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Pecking Order Theory ◽  
Public Offering ◽  
The Impact

The article investigates whether Malaysian initial public offering (IPO) firms engage in real and accrual earnings management (AEM) and examines the impact of leverage on the earnings management’s discretionary behaviour of the firms for the period of 2003–2013. The Dechow, Sloan, and Sweeney (1995, The Accounting Review, 70[2], 193–225) cross-sectional modified Jones model was used to estimate discretionary accruals, while Roychowdhury’s (2006, Journal of Accounting and Economics, 42[3]), 335–370) cross-sectional models were used to investigate abnormal real activity discretionary behaviour. The results indicate Malaysian IPO firms engage in real and accrual discretionary behaviour. The graphical presentations of the earnings’ management proxies indicate higher real and AEM for high-leverage firms. Similarly, the multivariate analysis indicates a positive relationship between leverage and earnings management, which is in tandem with the agency cost of free cash flow theory and debt hypothesis. It is also consistent with the pecking-order theory of capital structure. This study suggests that regulatory agencies and standard setters should continue to improve quality of accounting reports in order to protect investors’ invested capital.

The Restating of Financial Statements by REITs

2015 ◽  
Vol 32 (3) ◽  
pp. 350-371 ◽  
Author(s):  
John C. Adams ◽  
Darren K. Hayunga ◽  
Stephanie J. Rasmussen
Keyword(s):  
Abnormal Returns ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Cross Sectional ◽  
Market Reactions ◽  
Cumulative Abnormal Returns ◽  
Financial Restatements ◽  
Underlying Causes ◽  
Stock Market Reactions ◽  
Sectional Analysis

This article is the first to examine financial restatements by real estate investment trusts (REITs). We provide a descriptive breakdown of the underlying causes of REIT restatements as well as overall and subsample analyses of stock market reactions to restatements from 2000 to 2011. REIT restatements occur for a large variety of accounting issues with the most common being expense-related (e.g., leases, depreciation). We find that the average market reaction for REIT restatements is negative 0.63%, which is less negative than non-REIT restatements. Further investigation reveals that a significant portion of REIT restatements result in large positive or negative returns, the most extreme of which appear to be a result of both the restatement and other news released simultaneously. Cross-sectional analysis shows that the most important determinant of restatement cumulative abnormal returns (CARs) is whether the restatement is a result of Securities and Exchange Commission (SEC) comment letters or involves an investigation by regulators, which lowers the CAR by 5.64%. Overall, the findings suggest that REIT restatements occur for a variety of reasons, and REIT investors place high value on quality financial statements.

Dead Hand Proxy Puts and Hedge Fund Activism

2018 ◽  
Vol 54 (4) ◽  
pp. 1615-1642
Author(s):  
Sean J. Griffith ◽  
Natalia Reisel
Keyword(s):  
Cash Flow ◽  
Hedge Fund ◽  
Cost Benefit ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Flow Problems ◽  
Banking Relationships ◽  
Hedge Fund Activism ◽  
The Cost ◽  
Sectional Analysis

We investigate the Dead Hand Proxy Put, a contractual innovation in corporate debt agreements that may impact hedge fund activism. We find the provision principally in loans, not bonds, and provide evidence linking the adoption of the provision to hedge fund activism. Furthermore, controlling for endogeneity, we find that the provision significantly reduces the cost of loans. Bondholder wealth also increases. Moreover, cross-sectional analysis of share returns reveals that the provision is positively associated with repeat banking relationships and negatively associated with free cash flow problems, suggesting a cost-benefit tradeoff.

Heterogeneity and Asymmetry in Speed of Leverage Adjustment: The Indian Experience

2016 ◽  
Vol 19 (03) ◽  
pp. 1650019 ◽  
Author(s):  
Surenderrao Komera ◽  
P. J. Jijo Lukose
Keyword(s):  
Capital Structure ◽  
Cash Flow ◽  
Emerging Market ◽  
Adjustment Costs ◽  
Group Affiliation ◽  
Cross Sectional ◽  
Speed Of Adjustment ◽  
Business Group Affiliation ◽  
Optimal Leverage ◽  
Target Leverage

In this paper, we examine firms' capital structure adjustment behavior and estimate their “speed of adjustment” toward optimal leverage ratios by employing a dynamic, partial adjustment model. We find that sample firms on an average offset half of the deviation from their target leverage ratios in less than one and half (1.41) years. Such evidence suggests optimal capital structure behavior among sample firms. Further, we report cross sectional heterogeneity and asymmetry in speed of adjustment estimates, resulting from varied leverage adjustment costs across the sample firms. We find higher speed of adjustment estimates among larger sample firms suggesting higher leverage adjustment costs for smaller firms. Business group affiliation does not seem to influence the costs of sample firms' leverage adjustment. Over-levered firms report higher speed of adjustment estimates, suggesting that sample firms do not consider debt financing as a “disciplining mechanism” for managers. Further, we find lower speed of adjustment estimates for sample firms with higher cash flow, implying that Indian markets do not actively accommodate firms' cash flow needs. Thus, our findings reveal complex asymmetric information problems and consequent varied leverage adjustment costs among emerging market firms.

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.

An Examination of the Free Cash Flow and Information/Signaling Hypotheses Using Unexpected Dividend Changes Inferred from Option and Stock Prices: The Case of Regular Dividend Increases

2011 ◽  
Vol 14 (03) ◽  
pp. 563-600 ◽  
Author(s):  
Sheng-Syan Chen ◽  
Kuei-Chin Fu
Keyword(s):  
Research And Development ◽  
Cash Flow ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Positive Association ◽  
Free Cash Flow ◽  
High Q ◽  
Information Signaling ◽  
Dividend Increases ◽  
Free Cash Flow Hypothesis

This paper measures unexpected dividend changes in testing the free cash flow and information/signaling hypotheses using the Bar–Yosef/Sarig method. The empirical findings reveal the following: (i) The association between announcement period abnormal returns and the cash level is significantly positive for low q firms; (ii) The positive association between announcement period, abnormal returns, and the cash level is stronger in low q than in high q firms for most regressions; (iii) Low q firms reduce their capital and research and development (R&D) expenditures during the four fiscal years following dividend increase announcements. Our results are consistent with the free cash flow hypothesis.

The Investment Strategy of Free Cash Flow Multiple

1998 ◽  
Vol 01 (03) ◽  
pp. 355-367 ◽  
Author(s):  
Eric Liluan Chu
Keyword(s):  
Cash Flow ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Market Model ◽  
Superior Performance ◽  
Price Ratio ◽  
Cumulative Abnormal Returns ◽  
Daily Returns

This study applies the investment strategy recommended by Hackel and Livnat (1993), the free cash flow (FCF) multiple, in Taiwan after the promulgation of Taiwan's FASB No. 95 in 1989. The results indicate that the portfolio with the higher FCF/Price ratio significantly rewards returns in excess of the market. Instead of using earnings/price ratio in the forming portfolio, the study shows that the decile portfolio with the highest FCF/Price ratio significantly outperforms the market during the period from 1990 to 1994. If daily returns are adjusted by the market model, the decile portfolio presents an average 20.5268% cumulative abnormal returns in the testing period, which is statistically higher than zero. The results also indicate that the annual cumulative abnormal returns of the FCF/Price ratio based portfolio are all positive. The annual results also show that the decile portfolio performs much better when the market declines significantly. The outperformance still exists if returns are adjusted by the market without considering risk. The decile portfolio presents an average 8.198% abnormal with a significant t value returns. The superiority of free cash flow in forming portfolio exists but with a decreasing trend when the portfolio is enlarged. The result implies that either the firms with extremely high FCF/Price ratios are undervalued by the market or the market responses slowly to their superior performance in cash flows. The finding supports Hackel and Livnat's (1993) arguments. It suggests that free cash flow is useful information especially for the forming portfolio. The results also enhance the usefulness of the statement of cash flow.

Systemic operational risk

2017 ◽  
Vol 18 (3) ◽  
pp. 252-267 ◽  
Author(s):  
Thomas Kaspereit ◽  
Kerstin Lopatta ◽  
Suren Pakhchanyan ◽  
Jörg Prokop
Keyword(s):  
Factor Model ◽  
Abnormal Returns ◽  
Operational Risk ◽  
Spillover Effects ◽  
Market Reactions ◽  
Content Type ◽  
Banking Market ◽  
Specific Factors ◽  
Stock Market Reactions ◽  
High Degree

Purpose The aim of this paper is to study the information content of operational loss events occurring at European financial institutions with respect to the announcing bank’s industry rivals from an equity investor’s perspective. Design/methodology/approach The authors conduct an event study to identify spillover effects of operational loss events using the Carhart (1997) four-factor model as a benchmark model. In addition, they conduct multiple regression analyses to investigate the extent to which firm-specific factors or the market environment affect abnormal returns. Findings They observe significant negative abnormal returns following operational loss announcements exceeding € 50 million for both the announcing firms and their competitors. In addition, they find that stock market reactions occur only within a very small event window around the announcement date, indicating a high degree of market efficiency. Finally, abnormal returns tend to be insignificant for smaller loss amounts. Originality/value While operational risk is often believed to be strictly firm-specific, the results show that large operational risk events are not purely idiosyncratic; rather, they are systemic in the sense that they have contagious effects on non-event banks. Thus, the authors shed new light on how operational risk affects equity investors’ investment behaviour in an opaque and highly interconnected banking market.

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