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The aim of this paper is to study both the information content of accounting figures and the speed at which the new information is incorporated into stock prices.
Abstract
Purpose
The aim of this paper is to study both the information content of accounting figures and the speed at which the new information is incorporated into stock prices.
Design/methodology/approach
The sample is composed of 117 overnight announcements published by Reuters during the period 2001‐2003. For every date, the event is classified into one of three categories: good news, bad news or no news. The paper uses intraday event study methodology to examine market reaction just before and just after the event.
Findings
The intraday analysis reveals several results. Firstly, investors react positively to good news and negatively to bad news. Secondly, abnormal returns dissipate within 15 min. Thirdly, prices converge to equilibrium more quickly for good news than for bad news. Fourthly, we present evidence of price reversal 30 min following bad news announcements. Finally, earnings releases are accompanied by a rise in volume which remains even after the equilibrium price is attained.
Research limitations/implications
Price discovery is analyzed only in the stock market. It is pertinent to verify if the option market and foreign markets can contribute to the incorporation of new information into stock prices.
Practical implications
This work can help investors to determine their trading strategies around earnings announcements. The paper shows that it is not possible to realize trading profits after 15 min following the time of the announcement.
Originality/value
The study contributes to both financial accounting and microstructure literature. First, it focuses on the information content of accounting figures using very short horizon (intraday analysis). Second, the paper sheds light on the role of the Euronext preopening period in the incorporation of the overnight information flow.
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Jing Chi and Martin Young
Financial derivatives markets are a relatively new development globally. In the USA, the first commodity derivatives trading began in Chicago at the Chicago Board of Trade in…
Abstract
Financial derivatives markets are a relatively new development globally. In the USA, the first commodity derivatives trading began in Chicago at the Chicago Board of Trade in 1849. However, the first financial derivatives trading did not begin until 1972, when the Chicago Mercantile Exchange began trading futures contracts on seven foreign currencies. These were the world's first official financial futures contracts. In Europe, the oldest financial derivatives market was the London International Financial Futures Exchange, or LIFFE, which began trading financial futures in 1982.
Jing Chi and Martin Young
While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This paper…
Abstract
While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This paper examines the importance to China of developing a fully integrated financial derivatives market from both the economic and financial market perspectives. It examines the best way forward for derivative trading, both market based and over-the-counter, and the types of products best suited to both, given the current state of the Chinese financial markets. Consideration is given to market structure, regulation, trading and settlement systems and international cooperation.
Deborah Branswijck and Patricia Everaert
The purpose of this paper is to compare intellectual capital disclosure in the prospectus of an initial public offering (IPO) with the intellectual capital disclosure in the…
Abstract
Purpose
The purpose of this paper is to compare intellectual capital disclosure in the prospectus of an initial public offering (IPO) with the intellectual capital disclosure in the subsequent annual report. The first objective was to investigate whether companies make a commitment toward intellectual capital disclosure. The second objective was to investigate whether companies report more on intellectual capital in the prospectus.
Design/methodology/approach
This study investigated the prospectus and annual report using a sample of 55 firms that applied for an initial listing in Belgium and The Netherlands from 2005‐2009. A coding framework of 86 items was used to perform the content analysis.
Findings
The existence of intellectual capital disclosure commitment was confirmed. Moreover, the results demonstrated that companies report more extensively on intellectual capital in their prospectus in comparison to their annual reports.
Originality/value
This paper documents the first study to provide empirical evidence on the existence of intellectual capital disclosure commitment. Therefore, it offers a new path for future intellectual capital disclosure research.
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Giovanna Gavana, Pietro Gottardo and Anna Maria Moisello
The aim of this paper is to examine the effect of structural and demographic board diversity as well as board tenure on family firms' environmental performance, by analyzing the…
Abstract
Purpose
The aim of this paper is to examine the effect of structural and demographic board diversity as well as board tenure on family firms' environmental performance, by analyzing the differences between family and non-family businesses and within family firms.
Design/methodology/approach
Tobit regressions are applied to investigate the effect of independent directors, CEO non-duality, board gender diversity and board tenure on environmental performance. The study also controls for other board and firm characteristics, as well as for time, industry and country-fixed effects. In doing so, the authors rely on a sample of non-financial listed firms from France, Germany, Italy, Spain and Portugal over the period 2014–2021.
Findings
The authors find that women on the board positively influence environmental performance and this effect is significant only in family firms, although board tenure negatively moderates the relationship. Board independence significantly affects environmental performance only in non-family firms. A strong presence of family directors has a negative effect on family firms' environmental performance, especially when directors' turnover is low.
Originality/value
This paper examines the unexplored relationship between structural board diversity and environmental performance in family companies. This study provides empirical evidence on the association between gender diversity and family firms' environmental performance focusing for the first time on a European setting. Moreover, this study provides evidence of a different effect of board tenure in family and non-family businesses.
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Qingliang Tang, Huifa Chen and Zhijun Lin
The purpose of this study is to measure the financial reporting quality of 38 main countries (regions) in the world from 2000 to 2014.
Abstract
Purpose
The purpose of this study is to measure the financial reporting quality of 38 main countries (regions) in the world from 2000 to 2014.
Design/methodology/approach
This paper uses six accounting and auditing indicators to construct a comprehensive index for the measurement of country-level financial reporting quality. To test the validity of the methodology, the index to test institutional impacts on national financial reporting quality is used.
Findings
It was found that the results are consistent with the predictions and previous studies. The evidence suggests that the quality measure in this paper is innovative and appropriate and can provide a useful tool for researchers who are concerned with financial reporting quality at the country level.
Originality/value
The study is the first in the literature to use both accounting and auditing data to construct financial reporting quality indicators. The study should help international investors assess investment risks in foreign financial markets so as to make an informed decision. In addition, the diversity of financial reporting practices documented in the paper should prompt market regulators, accounting standard setters and professional accounting bodies to reinforce the efforts on international convergence of accounting and financial reporting standards and practices.
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Karol Marek Klimczak and Grzegorz Szafranski
Value relevance studies, in particular international comparative studies, use market values sampled at different dates relative to the fiscal year-end. This paper aims to…
Abstract
Purpose
Value relevance studies, in particular international comparative studies, use market values sampled at different dates relative to the fiscal year-end. This paper aims to contribute a theoretical and empirical analysis of the relationship between value relevance and the month of market value sampling.
Design/methodology/approach
The paper examines two components of value relevance, coincident relevance and forecast relevance, which the paper develops on the basis of the Ohlson model. The paper measures value relevance by estimating separate panel-data regressions for each of the 12 months around fiscal year-end. The sample consists of companies listed in two continental European countries, France and Germany, over the 1989-2008 period.
Findings
In both country panels, the paper finds that overall value relevance is higher when market value is sampled before or close to fiscal year-end, but incremental value relevance varies between domestic and International Financial Reporting (IFRS) accounting standards. Regression results reveal significant variations in coefficients over the following months of market value in French panel and its IFRS sub-sample only.
Research limitations/implications
The scope of the study is limited to the average value relevance parameters of companies listed on stock exchanges in France and Germany. Future research may be devoted to other countries and study additional determinants of value relevance.
Practical implications
The study shows that the selection of the month of market value sampling can have significant impact on value relevance regression results. Therefore, sensitivity analysis needs to be included in research studies which rely on the value relevance approach.
Originality/value
The paper contributes the first systematic analysis of the variation in value relevance parameters in response to the selection of the month in which market value is sampled.
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This paper starts from the observation that small businesses in France report a significant fraction of their net income in the form of non-core earnings. Consequently, the…
Abstract
Purpose
This paper starts from the observation that small businesses in France report a significant fraction of their net income in the form of non-core earnings. Consequently, the purpose of this paper is to examine the persistence and informativeness of both core and non-core earnings of small businesses listed on the Euronext Paris market.
Design/methodology/approach
Panel regressions estimated with heteroskedasticity robust standard errors are used to investigate the relationships between earnings components, future performance and stock market valuation of small businesses.
Findings
The findings show that core and non-core earnings of the current year (t), contrary to those of the previous year (t−1), make it possible to predict the performance of the next year (t+1). However, only the persistence of current core earnings is valued by the stock market.
Research limitations/implications
The study puts forward an anomaly of market efficiency. Thus, it shows that investors in the French stock market do not appropriately price a part of the available financial information (i.e. non-core earnings) that may contribute to a better assessment of the future performance of listed small businesses.
Practical implications
The persistence of non-core earnings is certainly less important than that of core elements but able to help investors appraise the future performance of listed small businesses. Hence, it represents useful financial information for investors.
Originality/value
This paper contributes to the existing literature by investigating the relationships between earnings, future performance and stock market valuation of listed SMEs, especially. Thus, the findings of this research allow a better understanding of earnings components properties (i.e. persistence) and their implication on the stock market valuation (i.e. informativeness) of listed SMEs. Given the observed specificities of earnings for this category of firms, these findings may be of particular interest to both researchers and investors.
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This paper aims to review the development of the Channel Islands exchange and assess the potential diversification benefits arising from the inclusion of this market in investment…
Abstract
Purpose
This paper aims to review the development of the Channel Islands exchange and assess the potential diversification benefits arising from the inclusion of this market in investment portfolios containing UK and French equity assets.
Design/methodology/approach
First this paper uses a simple stochastic drift, GARCH, and time‐varying parameter CAPM to model total returns indices. Second, it uses the unconditional and conditional means and variances from first stage as inputs into a mean‐variance portfolio quadratic optimisation problem: the solutions of which denote the optimal asset weights.
Findings
The evidence suggests that although there are serious difficulties in modelling time series from small illiquid equity markets owing to price‐rigidity, the limited benefits that do exist for the inclusion of Channel Islands assets in portfolios do so preferentially with Paris as opposed to London assets.
Originality/value
This paper extends the literature development policy options for small offshore markets and provides the first analysis of the Channel Islands.
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This study aims to investigate – theoretically and empirically – if call auctions incorporate asymmetric information into prices.
Abstract
Purpose
This study aims to investigate – theoretically and empirically – if call auctions incorporate asymmetric information into prices.
Design/methodology/approach
First, this study introduces a new model of price formation in a call auction with insider information. In this call auction model, insider trading gives rise to an asymmetric information component of transaction costs. Next, this study estimates the model using 20 stocks from Euronext Paris and investigates if the asymmetric information component is present.
Findings
The theoretical analysis reveals that call auctions incorporate asymmetric information into prices. The empirical analysis finds strong evidence for the asymmetric information component. Testable implications provide further support for the model.
Practical implications
Call auctions have recently been proposed as an alternative to continuous limit order book markets to overcome problems associated with high-frequency trading. However, it is still an open question whether call auctions efficiently aggregate asymmetric information. The findings of this study imply that call auctions facilitate price discovery and, therefore, are a viable alternative to continuous limit order book markets.
Originality/value
There is no generally accepted measure of trading costs for call auctions. Therefore, the measure introduced in this study is of great value to anyone who wants to quantify trading costs in call auctions, understand the determinants of trading costs in call auctions or compare trading costs and their components between continuous markets and call auctions. This study also contributes to the literature devoted to estimating the probability of information-based trading.
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