EXPRESS: Mitigating industry contagion effects from financial reporting fraud: A competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities

Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e., industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market opportunities at the expense of errant firms. We apply the competitive dynamics literature to argue that non-errant rivals experience lower contagion effects when they have more available slack to engage in competitive actions. This effect is expected to strengthen when rival firms have previously deployed more resources for R&D and advertising investments or have higher prior market share growth to demonstrate effective deployments of available resources. These arguments are supported for contagion effects from reports of U.S. SEC investigations from 2001 to 2004. We contribute to research and practice by going beyond discussions on corporate governance to evaluations of key competitive attributes that investors assess when reacting to such frauds.

HOW DO THE ECB MEETINGS AFFECT THE STOCK VALUATIONS OF FOUR IBEX35 BANKS?

Purpose: Analyze the data and draw there were any relevant conclusions between the meetings of the central bank and the movements of the banking corporations in the stock market. Methodology: To carry out this study, it was necessary to obtain two extremely important data sets (exact dates of the ECB meetings, stock market valuations of the four banking entities understudy). Both were obtained by searching on specialized websites. Then a comparison of the variations, a correlation table, which will allow us to mathematically affirm whether there is a linear relationship and proportionality between the variations of the banks or not, were analyzed. Main Findings: The results obtained indicate that such influence on the part of the European Central Bank on the financial entities listed on the IBEX35 does not exist, since the variations between bank shares are random and maybe would be better explained by other hypotheses or inputs. Application of Study: This work discards the hypothesis proposed by the student, although it manages to find other interesting relationships between banks because of the correlation analysis carried out in the analysis part of the work. Novelty/Originality: Establish the relationship between the meetings of the central bank and the movements of the banking corporations in the stock market.

Disclosures of ESG Misconducts and Market Valuations: Evidence from DAX Companies

Environmental, social and governance (ESG) factors have become an important topic on capital markets amid an increasing interest in responsible investing. Despite this fact, public companies have been involved in a number of ESG misconducts in recent years, which were often against the interests of their stakeholders. In our research, we refer to stakeholder theory in order to show how disclosures of social misconducts against the companies’ stakeholders have affected market valuation of listed companies, which we treat as one of the measures of shareholders’ wealth. We conduct an event study on 235 ESG misconducts related to DAX companies. The data sample of ESG news was hand collected in a thorough content analysis in the period of 2000-2019. The main findings reveal that investors’ reactions were more severe for ESG news released after 2009 than before this date as illustrated by negative and significant cumulative average abnormal returns (CAARs) in different event windows, while before 2009 CAARs were insignificant. We also found out that investors reacted stronger to governance- rather than social or environmental news. Our results provide a guidance for listed companies on how ESG mismanagements might affect their market value, and for investors who intend to incorporate ESG factors in their investment decision processes.

Country Risk

We construct new measures of country risk and sentiment as perceived by global investors and executives using textual analysis of the quarterly earnings calls of publicly listed firms around the world. Our quarterly measures cover 45 countries from 2002-2020. We use our measures to provide a novel characterization of country risk and to provide a harmonized definition of crises. We demonstrate that elevated perceptions of a country's riskiness are associated with significant falls in local asset prices and capital outflows, even after global financial conditions are controlled for. Increases in country risk are associated with reductions in firm-level investment and employment. We also show direct evidence of a novel type of contagion, where foreign risk is transmitted across borders through firm-level exposures. Exposed firms suffer falling market valuations and significantly retrench their hiring and investment in response to crises abroad. Finally, we provide direct evidence that heterogeneous currency loadings on global risk help explain the cross-country pattern of interest rates and currency risk premia.

Concentrate or diversify? The relationship between tenant concentration and REIT performance

This paper examines how a concentrated tenant base affects the operating performance and market valuations of US REITs. We observe that REITs adopting a concentrated tenant base present higher corporate cash flows and lower expenses. However, we identify a concentration discount effect that REITs with a more concentrated tenant base experience lower market valuations. We argue that this concentration discount is a result of the trade-offs between the impacts of the tenant base on the operating performance, risk levels and growth potentials. We find that a concentrated tenant base is associated with higher liquidity risk and lower dividend growth, resulting in an inflated discount factor. Our findings are not subject to sub-samples of focused or diversified REITs and stay robust after correcting for the selection bias as well as controlling for the lease structure, tenant quality and anchor tenant effect.r

Green Investing: Impact of Pro-environmental Preferences on Stock Market Valuations During Turbulent Periods

The study addresses the growing popularity and need of green investing. Green investing have been shown to churn lesser yields and underperform general market portfolios. Rapid growth of green bonds, green funds and green theme indices worldwide indicate towards the growing segment within investment community. The ethical screens lead to crunching of investable universe as a result such funds are expected to lose on diversification benefits. The study attempts to investigate the performance of green and non-green portfolios during the crisis and validate the differential impact of crisis on their demand. It further examines the impact of market cycles on the returns of portfolios. The period is classified into pre-crisis, crisis and post-crisis period. Asset pricing models believed to explain the returns on well diversified market portfolio have been applied on constructed green and non-green portfolios to measure the abnormal return. Green portfolios are noticed to be picking pace and outperforming market after the crisis surpassed. Indian investors are not penalizing companies for their green initiatives and such initiatives are believed to drive demand for the stock.

Analyzing the market valuations of the world's leading public oil and gas corporations

Subject. This article explores the market valuation ratios of the twenty five leading public oil and gas companies between 2006 and 2018. Objectives. The article aims to identify key trends in the changes in market valuations of the largest public oil and gas companies, and identify the factors that have caused these changes. Methods. For the study, I used comparative, and financial and economic analyses, and generalization of materials of the companies' consolidated financial statements. Results. The article shows certain changes in the main indicators of market valuation of the leading public oil and gas companies and identifies the main factors that contributed to these changes. It establishes that the most significant for comparison and valuation are ratios based on balance sheet values of assets and equity, and EBITDA, DACF and net income ratios are appropriate as auxiliary ratios. The article says that the exchange segment of the industry has increased the debt load, so instead of market capitalization as a component of the coefficients of this group, it is advisable to apply the company's value indicator. Conclusions and Relevance. The article concludes that the market sentiments towards the stock market segment of the global oil and gas industry are getting impaired. This is quite natural against the background of falling profitability of most leading companies. The results of the study can be useful in evaluating, forecasting and developing measures to increase the market capitalization and value of public oil and gas companies.

Capital, Contagion, And Financial Crises

After the 2008-09 financial crisis, policymakers around the world focused on enacting improvements that would make the emergence of a financial crisis less likely (ex ante) and recovery from one more rapid (ex post). This Article identifies a gap in both the academic literature and the current financial regulatory framework in exploring how to limit the damage—to other firms, and to the financial system—when a crisis is ongoing. Policymakers cannot predict the origins of every future crisis, just as firefighters cannot predict the origins of every future fire. Once one begins, how can they keep the damage from spreading? The academic theory on financial crisis “firefighting” divides into two main camps. The “capital view” claims that runs on financial institutions are fundamentally rational, and that investors care mainly about solvency. Under this view, the best way to fight runs is to raise capital requirements ahead of time, to multiples of current levels. The “contagion view” claims instead that the lack of liquid assets both defines and causes bank runs; an institution’s access to cash (and instruments like it) determines whether and when investors will withdraw funding. Under this view, the best way to fight runs is for governments to lend banks money—freely, at high rates, and against good collateral—and to promise to do so well before a crisis starts. In this Article—the first to directly address this question empirically—we show that neither view fits the most catastrophic financial shock of the last ninety years: the 2008 Lehman Brothers bankruptcy. In some cases, banks with more capital and liquidity were actually more exposed, not less, to the market panic following Lehman’s collapse. By contrast, we show that simple market correlation was a powerful predictor of exposure to the Lehman run. We also show that market valuations of large banks are more highly correlated today than they were in September 2008, creating a potential unaddressed conduit for an unexpected shock to metastasize into a contagious run.