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The authors measure the cost of equity to earnings yield differential for a sample of 2,035 non-financial firms. In a series of Logit and Tobit regressions, the authors examine if the cost of equity to earnings yield differential is related to dividend policy in the manner predicted by agency theory.

Agency theory says a firm's optimal dividend policy is partially determined by the relationship between the earnings yield and the cost of equity capital. When the cost of equity is higher (lower) than the earnings yield, firms are motivated to (not) pay dividends as this reduces the cost of capital and holding other things constant, increases corporate valuations. The authors test whether managers set dividend policies to maximize the value of the firm.

The study’s findings show that when the cost of equity is higher (lower) than earnings yield, firms are more (less) likely to be dividend payers and the payouts are higher (lower). The results are robust to the inclusion of share repurchases as an alternative to cash distributions. The study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories.

The study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories. To the authors’ knowledge, this is the first paper testing the cost of equity hypothesis.

This study aims to find the response by stock market against the announcements of quarterly earnings is empirically tested by exploiting event study methodology. Efficient market hypothesis (EMH) on Saudi stock exchange is also tried on.

The market model is applied to help gauge the expected returns and to illustrate abnormal returns around the event date.

The results established that Saudi Stock Market does not bear semi-strong form of EMH. How efficient is the Saudi market is also reflected through evidence of significant abnormal returns and post-earnings announcement drift around earning announcements dates.

The authors have not used analysts’ forecast as the expected earnings which are the limitation. As mentioned earlier, the authors used the quarterly earnings of the previous year as a proxy and that proxy could have been replaced by analysts’ forecast. Another limitation is that the trading volume in the event window is not considered.

The behavior of Saudi capital market is of much concern, and the study of this with a perspective of EMH is the significance of this paper.

All stakeholders closely watch earnings announcements and its share price movement around the announcement date. Recently, Saudi Arabia has opened its doors to foreign investors, and big foreign investors are going to enter into Saudi capital market, and after their entry, the behavior of market could be different. In the authors’ opinion, this is the right time to study the efficiency of Saudi market before the entry of foreign investors.

This study is based on the gap created by EMH of Saudi market using event methodology, observed in the existing literature, and it will be a contribution to literature.

This study will examine the impact of cash dividends on the market value of banks listed in Middle East and North African (MENA) emerging countries during the period 2000–2015.

The current study adopts residual income approach based on Ohlson's (1995) valuation model. By testing different statistical techniques, fixed effect is applied on panel data for (144) banks listed on 11 MENA stock markets over the period 2000–2015. Furthermore, additional tests are applied to confirm the primary results.

The analysis reveals that current dividend payouts and dividend yield do not provide information relevant to the establishment of market values in MENA emerging markets; thus, they have no material impact on MENA banks' market values. This lack of current dividend payment effect is consistent with Miller and Modigliani (1961) dividend irrelevance assumption: there is no evidence of either an informational or real cash inflow effect of current dividend payments. The findings of this study can be attributed to the fact that MENA banks may be forced to place more emphasis on allocating money for investment instead of paying dividends given them they are subject to liquidity requirements for investment, expansion, general operations and compliance with regulations. Only after all these financial needs are covered can the remaining surplus be distributed as cash dividends. Therefore, cash dividends represent earnings residual rather than an active decision variable that impacts a firm's market value. This is consistent with the residual dividend hypothesis, which is the crux of Miller and Modigliani (1996) irrelevance theory of dividends.

The current study is restricted to a sample of one type of financial firms, banks, because of the problem of missing data and limited information related to other financial firms for the same period. Therefore, further research could be additional types of financial firms such as insurance firms that play a vital role in MENA emerging economies.

The results of this study have some important implications for banks' dividend policymakers. Dividend policymakers in MENA emerging markets seem to follow residual dividend policy, in which they distribute dividends according to what is left over after all acceptable investment opportunities have been undertaken. This makes for inconsistent and unstable dividend policy trends, making it difficult for investors to predict future dividend decisions. Further, this practice may deliver information to shareholders about a lack of positive future investment opportunities, and this may negatively affect the share value of banks.

This study is the first of its kind – up to the author's knowledge – that examines a large cross-country sample of MENA banks (144) to cover a long time period in the recent past, and, more importantly, after the banking sector in the region has experienced major transformations during last two decades. In addition, most of the MENA region countries included in this study, namely, banks, operate in tax-free environments (there are neither taxes on dividends nor on capital gains). This feature adds complexity to the ongoing dividend debate.

This study aims to analyze the influence of taxes and corporate governance on the dividend policy of Brazilian companies.

The authors identify the changes of the tax legislation in Brazil in the period 1986-2011 and check their effect on corporate dividend policies for preferred and common shares. The authors use panel data Probit and Tobit estimation to verify the probability of companies to pay dividends under different tax regimes. The final sample comprises 672 companies, 1,159 traded stocks and 30,134 observations

The authors’ results suggest that changes in the tax legislation have a significant influence on dividend payments. Also, firms do not follow target payout ratios, but dividends are moderately dependent on past payments. Dividend payouts are affected by stock voting rights, privatization and dividend deductibility. Changes in regulation that reduce the agency problems among shareholders affect positively payout ratios.

For managers, maximizing shareholders’ value requires taking into account the consequences of the taxation when designing financial policies for the firm. For investors, stock portfolio selection should take into account payout behavior and how changes in dividend taxation affect stocks’ value. For policymakers, the effects of changes in the tax code on corporate behavior are of utmost importance to stimulate private investment and economic growth.

There are several tax law changes in Brazil within the period analyzed, creating a good opportunity to study the effect of taxation on dividend policy and its dynamics over time.

The purpose of this study is to describe the development of market based accounting research (MBAR) published in Indonesia for 10 years. This study attempts to explain the topics of MBAR, research method used, the variables, between-variable relationship formed, and the units analysis used in MBAR. This research uses qualitative-descriptive method to create descriptive models of MBAR articles published in accounting journals that have been accredited with minimum grade of B. The analysis of 109 MBAR articles of five accounting journals shows that 10 MBAR themes are still potential. Among three methods in MBAR, the multivariate association study is dominant. Some papers use intervening and moderating model to explore the relationship between accounting data and capital market reaction. The results for each theme are described in a research map that shows the relationship between variables (constructs) of MBAR from three units of analysis. This paper finds some implications to MBAR research agenda in the future, especially for meta-analysis research and triangulation research, due to many inconsistencies of the MBAR findings in Indonesia. In addition, accounting standard research topic is still promising in the moment of accounting standards transition.

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.

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.

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.

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.

The paper aims to provide empirical evidence of the impact of IFRS adoption on the value relevance of accounting information in the emerging market of Saudi Arabia.

The sample consists of 98 non-financial listed firms operating in Saudi Arabia from 2014 to 2019, representing the years before and after IFRS adoption. The authors apply basic and extended price models to examine the value relevance of select accounting figures.

The authors findings provide evidence that accounting information is, generally, value relevant to the Saudi Arabian capital market. However, mixed results exist for particular accounting variables. Both earnings and cash flows are value-relevant in the period before and after IFRS adoption; equity is only relevant in the post-adoption period. Furthermore, IFRS adoption also increases the explanatory power of earnings. An increase in the value relevance of earnings and equity hurts the value relevance of cash flows. The effects are moderated by leverage and dividend policy.

The authors contribute to the ongoing discussion of the economic effects of IFRS adoption in emerging markets. The empirical findings show that initial concerns about IFRS adoption, as reflected by the negative coefficient within the regression analysis, are mitigated once the usefulness of the individual accounting variables published in financial statements is investigated.

The purpose of this paper is to examine the influence of earnings persistence and earnings power on equity valuation.

The purposive sampling method was applied to determine the samples of selected 100 firms. This study employed secondary data obtained from the annual reports and financial statements of consumer goods firms listed on the Indonesian Stock Exchange for the period 2010–2014. The analysis technique used a multiple regression analysis.

The study result shows that, partially, earnings persistence and earnings power affect equity valuation by investors. Earnings persistence has a negative influence, whereas earnings power has a positive influence on equity valuation.

This study throws additional lights on equity valuation specific to consumer goods industries.

The impact of volatility crush can be devastating to an option buyer and results in a substantial capital loss, even with a directionally correct strategy. As a result, most volatility plays are for option sellers, but the profit they can achieve is limited and the sellers carry unlimited risk. This paper aims to demonstrate the dynamics of implied volatility (IV) as being influenced by effects of persistence, leverage, market sentiment and liquidity. From the exploratory factor analysis (EFA), they extract four constructs and the results from the confirmatory factor analysis (CFA) indicated a good model fit for the constructs.

This section describes the methodology used for conducting the study. This includes the study area, study approach, sources of data, sampling technique and the method of data analysis.

Although there is extensive literature on methods for estimating IV dynamics during earnings announcement, few researchers have looked at the impact of expected market maker move, IV differential and IV Rank on the IV path after the earnings announcement. One reason for this research gap is because of the recent introduction of weekly options for equities by the Chicago Board of Options Exchange (CBOE) back in late 2010. Even then, the CBOE only released weekly options four individual equities – Bank of America (BAC.N), Apple (AAPL.O), Citigroup (C.N) and US-listed shares of BP (BP.L) (BP.N). The introduction of weekly options provided more trading flexibility and precision timing from shorter durations. This automatically expanded expiration choices, which in turned offered greater access and flexibility from the perspective of trading volatility during earnings announcement. This study has demonstrated the impact of including market sentiment and liquidity into the forecasting model for IV during earnings. This understanding in turn helps traders to formulate strategies that can circumvent the undefined risk associated with trading options strategies such as writing strangles.

The first limitation of the study is that the firms included in the study are relatively large, and the results of the study can therefore not be generalized to medium sized and small firms. The second limitation lies in the current sample size, which in many cases was not enough to be able to draw reliable conclusions on. Scaling the sample size up is only a function of time and effort. This is easily overcome and should not be a limitation in the future. The third limitation concerns the measurement of the variables. Under the assumption of a normal distribution of returns (i.e. stock prices follow a random walk process), which means that the distribution of returns is symmetrical, one can estimate the probabilities of potential gains or losses associated with each amount. This means the standard deviation of securities returns, which is called historical volatility and is usually calculated as a moving average, can be used as a risk indicator. The prices used for the calculations are usually the closing prices, but Parkinson (1980) suggests that the day’s high and low prices would provide a better estimate of real volatility. One can also refine the analysis with high-frequency data. Such data enable the avoidance of the bias stemming from the use of closing (or opening) prices, but they have only been available for a relatively short time. The length of the observation period is another topic that is still under debate. There are no criteria that enable one to conclude that volatility calculated in relation to mean returns over 20 trading days (or one month) and then annualized is any more or less representative than volatility calculated over 130 trading days (or six months) and then annualized, or even than volatility measured directly over 260 trading days (one year). Nonetheless, the guidelines adopted in this study represent the best practices of researchers thus far.

This study has indicated that an earnings announcement can provide a volatility mispricing opportunity to allow an investor to profit from a sudden, sharp drop in IV. More specifically, the methodology developed by Tan and Bing is now well supported both empirically and theoretically in terms of qualifying opportunities that can be profitable because of the volatility crush. Conventionally, the option strategy of shorting strangles carries unlimited theoretical risk; however, the methodology has demonstrated that this risk can be substantially reduced if followed judiciously. This profitable strategy relies on a set of qualifying parameters including liquidity, premium collection, volatility differential, expected market move and market sentiment. Building upon this framework, the understanding of the effects of persistence and leverage resulted in further reducing the risk associated with trading options during earnings announcements. As a guideline, the sentiment and liquidity variables help to qualify a trade and the effects of persistence and leverage help to close the qualified trade.

The authors find a positive association between the effects of market sentiment, liquidity, persistence and leverage in the dynamics of IV during earnings announcement. These findings substantiate further the four factors that influence IV dynamics during earnings announcement and conclude that just looking at persistence and leverage alone will not generate profitable trading opportunities.

The impact of volatility crush can be devastating to the option buyer with substantial capital loss, even for a directionally correct strategy. As a result, most volatility plays are for option sellers; however, the profit is limited and the sellers carry unlimited risk. The authors demonstrate the dynamics of IV as being influenced by effects of persistence, leverage, market sentiment and liquidity. From the EFA, they extracted four constructs and the results from the CFA indicated a good model fit for the constructs. Using EFA, CFA and Bayesian analysis, how this model can help investors formulate the right strategy to achieve the best risk/reward mix is demonstrated. Using Bayesian estimation and IV differential to proxy for differences of opinion about term structures in option pricing, the authors find a positive association among the effects of market sentiment, liquidity, persistence and leverage in the dynamics of IV during earnings announcement.

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).

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

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.

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.

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.

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.