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Open Access
Article
Publication date: 3 August 2022

Guqiang Luo, Kun Tracy Wang and Yue Wu

Using a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards…

1016

Abstract

Purpose

Using a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards meeting or beating analyst earnings expectations (MBE).

Design/methodology/approach

The authors use an event study methodology to capture market reactions to MBE.

Findings

The authors document a stock return premium for beating analyst forecasts by a wide margin. However, there is no stock return premium for firms that meet or just beat analyst forecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts.

Research limitations/implications

The authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market's over-skepticism of earnings management being a plausible mechanism for this phenomenon.

Practical implications

The findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers' earnings management.

Originality/value

The authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

Details

China Accounting and Finance Review, vol. 25 no. 2
Type: Research Article
ISSN: 1029-807X

Keywords

Open Access
Article
Publication date: 30 June 2021

Shreya Sharda

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian context…

2037

Abstract

Purpose

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian context. The efficient market hypothesis, specifically, its semi-strong form, is tested for “Buy” stock recommendations published in the electronic version of Business Standard. The crucial issue is, are there any abnormal returns that can be earned following a recommendation? If so, how quickly do prices incorporate the information value of these recommendations? It tests the impact of analyst recommendations on average abnormal returns (AARs) and standardized abnormal returns (SRs) to determine their statistical significance.

Design/methodology/approach

Using a sample of stock recommendations published in the e-version of Business Standard, the event study methodology is used to determine whether AARs and SRs are significantly different from zero for the duration of the event window by using several significance tests.

Findings

The findings indicate a marginal opportunity for profit in the short term, restricted to the event day. However, the effect does not persist, i.e. the market is efficient in its semi-strong form implying that investors cannot consistently earn abnormal returns by following analysts’ recommendations. Post the event date, the market reaction to analyst recommendations becomes positive, however, insignificant until the ninth day after the recommendation providing support to the underreaction hypothesis given by Shliefer (2000) and post-recommendation price drift documented by Womack (1996). The study contributes by using different statistical tests to determine the significance of returns.

Practical implications

There are important implications for traders, investors and portfolio managers. The speed with which market prices incorporate publicly available information is useful in formulating trading strategies. However, stock characteristics such as market capitalization, volatility and level of analyst coverage need to be incorporated while making investment decisions.

Originality/value

The study contributes by using different statistical tests to determine the significance of returns.

Details

Vilakshan - XIMB Journal of Management, vol. 19 no. 1
Type: Research Article
ISSN: 0973-1954

Keywords

Open Access
Article
Publication date: 18 July 2023

Nishant Agarwal and Amna Chalwati

The authors examine the role of analysts’ prior experience of forecasting for firms exposed to epidemics on analysts’ forecast accuracy during the COVID-19 pandemic.

Abstract

Purpose

The authors examine the role of analysts’ prior experience of forecasting for firms exposed to epidemics on analysts’ forecast accuracy during the COVID-19 pandemic.

Design/methodology/approach

The authors examine the impact of analysts’ prior epidemic experience on forecast accuracy by comparing the changes from the pre-COVID-19 period (calendar year 2019) to the post-COVID period extending up to March 2023 across HRE versus non-HRE analysts. The authors consider a full sample (194,980) and a sub-sample (136,836) approach to distinguish “Recent” forecasts from “All” forecasts (including revisions).

Findings

The study's findings reveal that forecast accuracy for HRE analysts is significantly higher than that for non-HRE analysts during COVID-19. Specifically, forecast errors significantly decrease by 0.6% and 0.15% for the “Recent” and “All” forecast samples, respectively. This finding suggests that analysts’ prior epidemic experience leads to an enhanced ability to assess the uncertainty around the epidemic, thereby translating to higher forecast accuracy.

Research limitations/implications

The finding that the expertise developed through an experience of following high-risk firms in the past enhances analysts’ performance during the pandemic sheds light on a key differentiator that partially explains the systematic difference in performance across analysts. The authors also show that industry experience alone is not useful in improving forecast accuracy during a pandemic – prior experience of tracking firms during epidemics adds incremental accuracy to analysts’ forecasts during pandemics such as COVID-19.

Practical implications

The study findings should prompt macroeconomic policymakers at the national level, such as the central banks of countries, to include past epidemic experiences as a key determinant when forecasting the economic outlook and making policy-related decisions. Moreover, practitioners and advisory firms can improve the earning prediction models by placing more weight on pandemic-adjusted forecasts made by analysts with past epidemic experience.

Originality/value

The uncertainty induced by the COVID-19 pandemic increases uncertainty in global financial markets. Under such circumstances, the importance of analysts’ role as information intermediaries gains even more importance. This raises the question of what determines analysts’ forecast accuracy during the COVID-19 pandemic. Building upon prior literature on the role of analyst experience in shaping analysts’ forecasts, the authors examine whether experience in tracking firms exposed to prior epidemics allows analysts to forecast more accurately during COVID-19. The authors find that analysts who have experience in forecasting for firms with high exposure to epidemics (H1N1, Zika, Ebola, and SARS) exhibit higher accuracy than analysts who lack such experience. Further, this effect of experience on forecast accuracy is more pronounced while forecasting for firms with higher exposure to the risk of COVID-19 and for firms with a poor ex-ante informational environment.

Details

China Accounting and Finance Review, vol. 25 no. 4
Type: Research Article
ISSN: 1029-807X

Keywords

Open Access
Article
Publication date: 20 September 2022

Liangyin Chen, Jun Huang, Danqi Hu and Xinyuan Chen

This paper aims to examine the effect of dividend regulation on cost stickiness (i.e. the asymmetric change in firm expense between sales increase and sales decrease) and explore…

Abstract

Purpose

This paper aims to examine the effect of dividend regulation on cost stickiness (i.e. the asymmetric change in firm expense between sales increase and sales decrease) and explore the underlying mechanism.

Design/methodology/approach

Based on the quasi-natural experiment of the Guideline for Dividend Policy of Listed Companies issued by the Shanghai Stock Exchange (SSE) in 2013, the authors employ a difference-in-difference model to investigate the impact of dividend regulation on cost stickiness.

Findings

The authors find that the cost stickiness of treatment group firms has decreased significantly when compared with control group firms after the dividend regulation. Moreover, this effect is more pronounced among firms in lower marketization regions, in lower competition industries and those with less analyst coverage and lower cash flow levels. Further analyses show that dividend regulation reduces the cost stickiness of firms by mitigating agency problems. Finally, the conclusion holds after several robust tests, including controlling for firm fixed effect, propensity score matching (PSM), placebo test and reconstruction of expense variable.

Originality/value

This paper confirms that dividend regulation serves an important role in corporate governance, which reduces firms' agency costs and thereby decreases cost stickiness. The conclusions shed light on the dividend policies of listed companies and capital market regulation in the future.

Details

China Accounting and Finance Review, vol. 24 no. 4
Type: Research Article
ISSN: 1029-807X

Keywords

Open Access
Article
Publication date: 11 April 2023

Mengjie Huang, Kunpeng Sun and Yuan Xie

An emerging line of research examining the role of numerological superstition in the capital market shows that it has significant impact on investor behavior (Bhattacharya, Kuo…

Abstract

Purpose

An emerging line of research examining the role of numerological superstition in the capital market shows that it has significant impact on investor behavior (Bhattacharya, Kuo, Lin, & Zhao, 2018; Hirshleifer, Jian, & Zhang 2018). However, to the authors’ best knowledge, there is a dearth of evidence on whether numerological superstition affects corporate behavior. This study fills this void by examining the association between investors’ numerological superstition and earnings management using Chinese data.

Design/methodology/approach

Chinese culture views 6 and 8 as lucky numbers. Using Chinese publicly traded firms, the authors examine the relation between investors’ numerological superstition and corporate financial reporting behavior.

Findings

The results suggest that firms reporting lucky earnings-per-share (EPS) numbers ending with 6 or 8 are more likely to engage in earnings management. These firms also raise more capital through seasoned equity offerings in the following year; however, they do not have more capital investments. Instead, their controlling shareholders siphon a significant amount of capital through related party transactions. Overall, the findings suggest that managers collude with controlling shareholders to manage earnings by exploiting the superstitious beliefs of minority shareholders.

Originality/value

To the authors’ best knowledge, there is a dearth of evidence on whether numerological superstition affects corporate behavior. This study fills this void by examining the association between investors’ numerological superstition and earnings management using Chinese data.

Details

China Accounting and Finance Review, vol. 25 no. 3
Type: Research Article
ISSN: 1029-807X

Keywords

Open Access
Article
Publication date: 18 March 2019

Sheela Devi D. Sundarasen

This paper aims to provide empirical evidence on the extent of alteration institutional characteristics, i.e. legal origin and corruption levels, may have on the signaling effects…

2371

Abstract

Purpose

This paper aims to provide empirical evidence on the extent of alteration institutional characteristics, i.e. legal origin and corruption levels, may have on the signaling effects of auditors’ reputation, underwriters’ reputation and ownership retention on initial public offering (IPO) initial returns in OECD countries.

Design/methodology/approach

Cross-sectional data composed of 6,182 IPOs from 30 OECD countries are used for 2003-2012. Ordinary least square with multiple linear regressions is used to test the hypotheses.

Findings

The findings indicate that the legal framework and corruption level of a country alters the signaling effects of underwriters’ reputation, auditors’ reputation and ownership retention in an IPO environment. These three variables mitigate information asymmetry, signal firm value to potential investors and ultimately decrease IPO initial returns. This relationship is more significant in the civil law countries. Corruption levels negatively moderate the relationship in the common law and Scandinavian civil law countries but have no significance in the German and French civil law countries, indicating the importance of the signaling variables in these two civil law countries.

Originality/value

This study examines the extent of the alterations that the legal framework and the corruption levels cause to the signaling relationship between auditors’ reputation, underwriters’ reputation and ownership retention on IPO initial returns in selected OECD countries.

Details

PSU Research Review, vol. 3 no. 1
Type: Research Article
ISSN: 2399-1747

Keywords

Open Access
Article
Publication date: 14 November 2023

Xiaohui Xu and Yi Liu

The purpose of this study is to examine the impact of managerial short-termism on green innovation of firms and the moderating role of digital transformation of enterprises in the…

Abstract

Purpose

The purpose of this study is to examine the impact of managerial short-termism on green innovation of firms and the moderating role of digital transformation of enterprises in the association between managerial short-termism and green innovation.

Design/methodology/approach

This study uses data from Chinese A-share listed companies from 2001 to 2021 and employ panel fixed model and moderating effect model to examine the impact of managerial short-termism on green innovation of firms and the moderating role of digital transformation of enterprises in the association between managerial short-termism and green innovation.

Findings

The findings of this study reveal that managerial short-termism exerts negative influence on green innovation. Digital transformation enables firms to reduce the adverse effect of managerial short-termism on green innovation because digital transformation enhances information processing ability and then improves internal corporate governance and analyst coverage. Moreover, the moderating role of digital transformation is more prominent for firms with lower internal corporate governance, for firms with less analyst coverage and for non-state-owned enterprises.

Originality/value

This paper intends to address the following two questions: what is the impact of managerial short-termism on green innovation and what is the role of digital transformation in the two variables’ association? By using data of Chinese A-share listed companies from 2001 to 2021 and developing two individual indexes to measure managerial short-termism and digital transformation, the authors empirically test these above two questions. The results of this study indicate that: First, drawn on time-oriented theory and upper echelon theory, managerial short-termism has an adverse effect on firms’ green innovation. Second, digital transformation enables firms to reduce the negative effect of managerial short-termism on green innovation. Furthermore, the moderating mechanism tests show that the corporate governance effects of digital transformation play a supervisory role that impels managers to reduce short-term investments and promote firms’ green R&D investments, which helps to reduce the negative effect of managerial short-termism on green innovation. Additionally, the heterogeneity checks show that the moderating role of digital transformation in the relation between managerial short-termism and green innovation is more prominent for firms with lower internal corporate governance, with less analyst coverage and for non-state-owned enterprises.

Details

Asia Pacific Journal of Innovation and Entrepreneurship, vol. 17 no. 3/4
Type: Research Article
ISSN: 2071-1395

Keywords

Open Access
Article
Publication date: 31 March 2022

Kun Tracy Wang, Guqiang Luo and Li Yu

The purpose of this study is to examine whether and how analysts’ foreign ancestral origins would have an effect on analysts’ earning forecasts in particular and ultimately on…

Abstract

Purpose

The purpose of this study is to examine whether and how analysts’ foreign ancestral origins would have an effect on analysts’ earning forecasts in particular and ultimately on firms’ information environment in general.

Design/methodology/approach

By inferring analysts’ ancestral countries based on their surnames, this study empirically examines whether analysts’ ancestral countries affect their earnings forecast errors.

Findings

Using novel data on analysts’ foreign ancestral origins from more than 110 countries, this study finds that relative to analysts with common American surnames, analysts with common foreign surnames tend to have higher earnings forecast errors. The positive relation between analyst foreign surnames and earnings forecast errors is more likely to be observed for African-American analysts and analysts whose ancestry countries are geographically apart from the USA. In contrast, this study finds that when analysts’ foreign countries of ancestry are aligned with that of the CEOs, analysts exhibit lower earnings forecast errors relative to analysts with common American surnames. More importantly, the results show that firms followed by more analysts with foreign surnames tend to exhibit higher earnings forecast errors.

Originality/value

Taken together, findings of this study are consistent with the conjecture that geographical, social and ethnical proximity between managers and analysts affect firms’ information environment. Therefore, this study contributes to the determinants of analysts’ earnings forecast errors and adds to the literature on firms’ information environment.

Details

China Accounting and Finance Review, vol. 24 no. 1
Type: Research Article
ISSN: 1029-807X

Keywords

Open Access
Article
Publication date: 4 January 2024

Ankita Kalia

This study aims to explore the relationship between chief executive officer (CEO) power and stock price crash risk in India. Furthermore, it seeks to analyse how insider trades…

Abstract

Purpose

This study aims to explore the relationship between chief executive officer (CEO) power and stock price crash risk in India. Furthermore, it seeks to analyse how insider trades may moderate the impact of CEO power on stock price crash risk.

Design/methodology/approach

A study of 236 companies from the S&P BSE 500 Index (2014–2023) have been analysed through pooled ordinary least square (OLS) regression in the baseline analysis. To enhance the results' reliability, robustness checks include alternative methodologies, such as panel data regression with fixed-effects, binary logistic regression and Bayesian regression. Additional control variables and alternative crash risk measure have also been utilised. To address potential endogeneity, instrumental variable techniques such as two-stage least squares (IV-2SLS) and difference-in-difference (DiD) methodologies are utilised.

Findings

Stakeholder theory is supported by results revealing that CEO power proxies like CEO duality, status and directorship reduce one-year ahead stock price crash risk and vice versa. Insider trades are found to moderate the link between select dimensions of CEO power and stock price crash risk. These findings persist after addressing potential endogeneity concerns, and the results remain consistent across alternative methodologies and variable inclusions.

Originality/value

This study significantly advances research on stock price crash risk, especially in emerging economies like India. The implications of these findings are crucial for investors aiming to mitigate crash risk, for corporations seeking enhanced governance measures and for policymakers considering the economic and welfare consequences associated with this phenomenon.

Details

Asian Journal of Economics and Banking, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2615-9821

Keywords

Open Access
Article
Publication date: 20 September 2022

Victor Daniel-Vasconcelos, Maisa de Souza Ribeiro and Vicente Lima Crisóstomo

This study aims to investigate the association between the presence of a corporate social responsibility (CSR) committee and Sustainable Development Goals (SDGs) disclosure, as…

2621

Abstract

Purpose

This study aims to investigate the association between the presence of a corporate social responsibility (CSR) committee and Sustainable Development Goals (SDGs) disclosure, as well as the moderating role of gender diversity in this relation.

Design/methodology/approach

The sample consists of 897 annual observations from 238 firms from Argentina, Brazil, Chile, Colombia, Mexico and Peru for 2018–2020. The data were collected from the Refinitiv database. The proposed model and hypotheses were tested using the feasible generalized least squares estimation technique with heteroscedasticity and panel-specific AR1 autocorrelation.

Findings

The results reveal that the presence of CSR committees positively influences the SDGs. Gender diversity positively moderates the relationship between CSR committees and SDGs. Leverage and firm size also positively impact the SDGs. On the other hand, board size and CEO duality negatively affect SDGs disclosure.

Research limitations/implications

This study extends the scope of stakeholder theory by suggesting that CSR committees and gender diversity enable a better relationship for the firm with its stakeholders.

Practical implications

The findings support policymakers and managers in improving sustainability disclosure. In addition, the results demonstrate the importance of CSR committees and gender diversity to meet the stakeholders' demands.

Social implications

This study demonstrates how firms can improve sustainability issues through gender diversity and CSR committees.

Originality/value

To the best of the authors’ knowledge, this study complements previous literature by being the first to examine the moderating effect of gender diversity on the association between CSR committees and SDGs disclosure in the Latin American context.

Details

RAUSP Management Journal, vol. 57 no. 4
Type: Research Article
ISSN: 2531-0488

Keywords

1 – 10 of 196