Discount, transparency and announcements effects of equity rights offerings: international evidence

Equity rights offerings and their respective announcement effects have been studied extensively in the literature. Our study expands upon these studies and focuses on those announcement effects and the relation between the discount of an equity rights offering and the announcement effect. Previous theoretical and empirical analyses show that firms can signal their quality via the discount in an equity rights offering and demonstrate a negative relation between the discount and the announcement effect. We argue that this link is only relevant in environments where signalling is possible and necessary. These are financial markets with a particularly low level of capital market transparency, i.e. high information asymmetry. We calculate announcement effects for an international sample of equity rights offerings and show that the negative effect of the discount on announcement effects can only be observed in environments with a low capital market transparency. Hence, our study estimates announcement effects across several different countries and is thus among the first to analyse signalling considerations for equity rights offerings in different transparency environments.

Measuring the Short-Term Effects of the ECB’s Unconventional Monetary Policy on Financial Markets: A Review

Following the financial crisis in 2008, the ECB implemented various unconventional policy measures to respond to the tensions on the market. These measures had a significant impact and short-term effects on financial markets. This literature review provides a extensive overview of the empirical literature dealing with the short-term effects of this unconventional monetary policy using event studies. Furthermore, a methodological analysis of conducted event studies is carried out. First, we review empirical event studies focusing on the effects on the bond market, the stock market, as well as on international spill-over effects. Secondly, we carry out a methodological analysis of event studies that estimate the announcement effects of the ECB’s unconventional measures. In this context, the analysis provides insight into the process of determining relevant events, the categorization of those, measuring the surprise component, and determining control variables. By comparing the different approaches applied, we give a comprehensive overview of similarities as well as differences in the methodology used.

Announcement Effects of Convertible and Warrant Bond Issues with Embedded Refixing Option: Evidence from Korea

This study examines the announcement effects of convertible and warrant bond issues with embedded refixing option in Korea from January 2001 to December 2018. Refixing option denotes an adjustment right of the conversion price embedded in equity-linked debt when the underlying stock price falls under conversion price. I find statistically significant declines of 2.6 to 2.7 percentage points in cumulative abnormal returns for the inclusion of a refixing clause and especially further declines of 6.2 to 6.3 percentage points during the period from 2016 to 2018. This result implies that the market’s concerns about the dilution of existing shareholder value due to the exercise of the refixing rights are reflected in the market response. I further find that the degree of negative market response varies according to the changes in macroeconomic conditions and the stock exchange on which the issuing firms are listed. The findings are robust after controlling for the effect of firm-, issue-, and market-specific characteristics.

Do buzz and evidence really matter in product preannouncements? An empirical test of two competing theories

Purpose This paper aims to investigate if product pre-announcement effects measured using stock market returns conform to the predictions of two competing consumer marketing theories. In particular, while buzz marketing theory indicates a direct positive effect, information asymmetry theory suggests an influence contingent upon evidence. The study also investigates whether a pecking order of performance effects exists across different signaling situations. Design/methodology/approach The final sample consists of 219 product-preannouncements reported in the Wall Street Journal between 2005 and 2015. The standard event study methodology was used to test for performance effects. Findings The results show that preannouncements with evidence alone significantly outperform those with buzz alone, and announcements containing buzz and evidence. Also, buzz acts as a salient moderator of the relationship between evidence and performance. In addition, company size also affects the evidence-performance relationship, with smaller firms benefiting more from evidence than larger firms. Research limitations/implications The event study method assumes efficient markets and deals with publicly traded companies. Practical implications Managers can allocate resources wisely by deciding whether to invest in evidence or buzz in their pre-announcements. Originality/value In contrast to extant research that primarily investigates contingency effects, this study identifies how an important moderator, i.e. buzz affects performance.

What is Wrong with Convertible Bonds that Provide Call Options to Third Parties?

Callable convertible bonds (CBs) that provide call options to third parties but are not used in major economies have been issued since issuances of detachable privately placed bonds with warrants (BWs) were banned in 2013. The largest shareholders prefer callable CBs to detachable BWs as they are purchased only if call options are in the money. This study analyses the effect of call options on the announcement effects of CB issuances and conversion right exercises using 1,496 privately placed CBs issued between 2013 and 2018. The major findings are as follows. First, the announcement effects of callable CBs are significantly smaller than those of standard CBs, which indicates that providing call options to third parties is viewed negatively. Second, callable CB issuing firms have better operating performance, higher ownership of the largest shareholders, and a higher adoption rate of refixing clauses than standard CB issuing firms. Third, the announcement effects of exercising conversion rights are significantly negative and those of callable CBs are significantly more negative than those of standard CBs. In summary, the results highlight the structural problems of callable CBs and provide empirical evidence to support our hypothesis. We recommend that financial authorities ban the issuance of callable CBs.

The Announcement Effects of Convertible Bond Issuances and Refixing Conversion Prices

Using a sample of 1,421 convertible bond (CB) issuances announced between 2015 and 2018, this study examines the announcement effects of convertible bond issuances and refixing conversion prices (i.e., adjusting conversion price downward if stock price decreases after issuance). The major results are as follows: First, the announcement effect of CB issuances is significantly positive and the three-day cumulative abnormal return is 4.66%. Second, the announcement effect of CB issuances stating capital expenditures as the use of proceeds is significantly smaller than that of CB issuances stating other purposes. Third, the fact that the announcement effect of CB issuances with a refixing option is significantly smaller than that of those without a refixing option reflects the stock market’s negative opinion of the refixing option. Fourth, consistent with the third result, the announcement effect of refixing is also significantly negative. To summarize, this study contributes to finance theory by presenting, for the first time, evidence to support the negative effects of refixing options that are extremely favorable to holders.

Is healthy food convenient for health and pockets?

PurposeThe purpose of the study is to analyse the stock market response to a spin-off announcement concerning a food and beverage (F&B) business unit.Design/methodology/approachThe study uses a sample of approximately 107 spin-offs, 84 of which are operating in the F&B sector surveyed by the Zephyr–Bureau Van Dijk database. The event study approach is applied to the identified sample. The results demonstrate that the effect of an event on the stock price of a firm allows identification of the abnormal return as the difference between the current and expected returns.FindingsThe study finds that investors adjust positively to the closing of the spin-off deal. The peak of performance is reached on the day of the announcement.Research limitations/implicationsEmpirical evidence could be distorted by the mono-industry database, analysed in a “favourable time span.” The role of information transfer on spin-offs, in terms of diffusion and reduction of information asymmetries, could be developed.Originality/valueThe study represents a pioneering investigation of a category of mono-industry spin-offs. Previous doctrinal contributions underline the fact that abnormal returns corresponding to announcement effects are amplified in the case of information asymmetries but underestimate the effects deriving from the strategic business unit's nature as a spin-off.