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The purpose of this study is to investigate market reaction to corporate governance reform pronouncements on board diversity in Kenyan listed firms.
Abstract
Purpose
The purpose of this study is to investigate market reaction to corporate governance reform pronouncements on board diversity in Kenyan listed firms.
Design/methodology/approach
An event study was performed using 240 days pre-event period and an event period that consisted of 25 days pre and 25 days post the March 2016 board diversity reforms announcement in Kenya. The difference in differences (DiD) method was also used for cause–effect analysis for two years before and three years after the March 2016 board diversity reforms announcement. The outcome variable was firm value, whereas the treatment and control groups were Kenyan listed firms and deposit-taking credit unions, respectively.
Findings
The event study method found cumulative abnormal returns after the date of the board diversity reforms announcement to be positive and significant. The DiD methods found a positive and significant market reaction to the March 2016 board diversity reforms announcement in Kenya.
Research limitations/implications
This study was limited by the secondary data that was collected and analyzed from financial statements and stock price data from the Nairobi Securities Exchange (NSE). Financial statements have the disadvantage of being affected by the judgment and estimates of their preparers or accountants.
Practical implications
Emerging markets like the NSE are vulnerable to market manipulation by insiders. Efficient stock markets are known to attract more investors who are interested in a trustworthy stock price determination mechanism. The Capital Market Authority should thus continue implementing corporate governance reforms aimed at improving the efficiency of the NSE and the trustworthiness of stock prices therein. The continued reforms thus imply better value for money for the NSE investors.
Originality/value
This study makes an important contribution to literature by combining an event study and DiD analysis to assess market reaction to board diversity reform announcements in emerging markets of sub-Saharan Africa which is a concept that has not been researched before. Past studies have used event studies to investigate the efficiency status of stock markets in sub-Saharan Africa, whereas the current study used an additional method of DiD and hence contributed to literature.
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John R. Kuhn and Bonnie Morris
With computer technology fast becoming the engine that drives productivity, IT systems have become more pervasive in the daily operations of many businesses. Large, as well as…
Abstract
Purpose
With computer technology fast becoming the engine that drives productivity, IT systems have become more pervasive in the daily operations of many businesses. Large, as well as small, businesses in the USA now rely heavily on IT systems to function effectively and efficiently. However, past studies have shown CEOs do not always understand how reliant their business is on IT systems. To the authors’ knowledge, no research has not yet examined if financial markets understand how IT affects the performance of businesses. The paper aims to discuss these issues.
Design/methodology/approach
In this study, the authors utilize the event study method to examine how financial markets interpret weaknesses in businesses IT systems. The authors examine this in the context of the Sarbanes-Oxley Act – Section 404 requirements and utilize the internal reporting requirement in the annual financial statement filing with the Securities Exchange Commission as a proxy to evaluate how the financial markets interpret IT weaknesses.
Findings
Using an event study, the authors show that the market does not necessarily understand and respond to the effects of IT weaknesses on overall financial performance of firms and thus challenge the efficient market hypothesis theory.
Originality/value
A second contribution is methodological in nature. IS researchers thus far have been using limited market benchmarks, statistical tests, and event windows in their respective event studies of market performance. This study shows shortcomings of that approach and the necessity of expanding usage of available event analysis tools. The authors show that using more than one market benchmark and statistical test across multiple time frames uncovers the effects that using a single benchmark and test over a single window would have overlooked.
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Ron Day and Neil Hartnett
This paper examines the controversy surrounding the use of the Inverted‐Sum‐Of‐Years‐Digits (ISOYD) method of goodwill amortisation and events leading to its banning by the…
Abstract
This paper examines the controversy surrounding the use of the Inverted‐Sum‐Of‐Years‐Digits (ISOYD) method of goodwill amortisation and events leading to its banning by the Australian accounting regulatory bodies. Companies using the method claimed that a prohibition would reduce their share price and international competitiveness. On the other hand, efficient capital market proponents argued that the amortisation method was irrelevant to the economic position of a firm in the absence of any cash flow effects. This paper discusses these conflicting views and investigates possible motives for the choice of goodwill amortisation method through a cross‐company analysis of key characteristics. In addition, sharemarket reaction to key events leading to the change of policy was examined using conventional event‐study methodology. The cross‐company analysis revealed significant differences in the goodwill characteristics between ISOYD companies and non‐ISOYD companies which may have motivated their choice. The result of the event‐study found that no significant abnormal return could be unequivocally attributed to any of the key events or announcements.
Yuzuka Nakajima and Yushi Inaba
This study aims to examine the impact of voluntary adoption of integrated reporting on the stock prices of firms in Japan.
Abstract
Purpose
This study aims to examine the impact of voluntary adoption of integrated reporting on the stock prices of firms in Japan.
Design/methodology/approach
The event study methodology was used to analyze the stock market reactions to voluntary integrated report (IR) publication. Abnormal returns were estimated for 1,602 observations of 490 firms publishing IRs in Japan using the market model. The t-test, the Boehmer et al., 1991 test and the generalized sign test examined the significance of the cumulative average abnormal returns (CAARs).
Findings
The study reveals that the stock market reacts positively to voluntary IR publication by firms, especially in 2019 and 2015. Additionally, it reveals a tendency for higher CAARs around IR publication dates than around corporate social responsibility report publication dates, especially in 2016 and 2015.
Research limitations/implications
The limitations of this study include the possibility of self-selection bias and omitted variable bias.
Practical implications
This study suggests that firms can earn higher abnormal returns in the stock market through environmental, social and governance (ESG) disclosure in IRs, corroborating the recently rising investor interest in voluntary integrated reporting in Japan.
Originality/value
This study contributes to the literature on the value relevance of voluntary adoption of integrated reporting by providing evidence of firms achieving significantly positive abnormal returns around voluntary IR publication dates. There is no published analysis on this topic using multitudes of sample firms using the event study methodology.
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Yunus Karaömer and Songül Kakilli Acaravcı
This study aims to research how the outbreak of coronavirus disease 2019 (COVID-19) impacts the selected sector price indices in Borsa Istanbul (BIST), Turkey.
Abstract
Purpose
This study aims to research how the outbreak of coronavirus disease 2019 (COVID-19) impacts the selected sector price indices in Borsa Istanbul (BIST), Turkey.
Design/methodology/approach
The authors use the event study method because it is a useful method as stock prices and market instantly reflect the effect of such an unusual event. Data are retrieved from the https://www.investing.com/.
Findings
The authors find that selected sectors are impacted by the COVID-19 outbreak. The banking and transportation sectors, on the announcement of first death, were impacted negatively, while the telecommunication and food –beverage sectors were impacted positively. The transportation and banking sectors experience an obvious downturn after the spread of COVID-19, while the food–beverage and telecommunication sectors experience an obvious upturn after the spread of COVID-19. Besides, the most adversely impacted sector is banking.
Originality/value
This study bridges the research gap and adds significant insights to the existing literature. The main contribution of this study to the existing literature is the unexpected outbreak impacts on financial markets, especially on BIST. It is also expected that this study will make a significant contribution to analysts, researchers and policymakers.
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Bradford Cornell, John I. Hirshleifer and John N. Haut
A private right of action is not expressly mentioned in either §10(b) or Rule 10b-5 of the Securities Exchange Act of 1934, and hence such a right must be implied. To justify a…
Abstract
A private right of action is not expressly mentioned in either §10(b) or Rule 10b-5 of the Securities Exchange Act of 1934, and hence such a right must be implied. To justify a reasonable cause of action, the plaintiff must prove: (1) a material omission or misstatement; (2) made by the defendant with “scienter” (defined later); (3) which was the actual and proximate cause of injury to the plaintiff; (4) and was relied upon by the plaintiff.3 To reach the issue of damages, defendants’ liability in terms of satisfying the above four elements must be assumed.
Xingzhi Xiao and Yue Gao
The purpose of this paper is to examine the effects of China’s Food Safety Law on its food industry.
Abstract
Purpose
The purpose of this paper is to examine the effects of China’s Food Safety Law on its food industry.
Design/methodology/approach
First, an event study is employed to investigate the impact of regulatory changes on the food industry. Then the authors examine the association between the magnitude of cumulative abnormal returns (CARs) and firm characteristics in a cross-sectional regression framework.
Findings
The results suggest that the announcements of some important events during the legislative process do affect the investors’ expectations. Further analysis shows that some sub-industries, especially the dairy industry, underperform the others around the enforcement date of the Food Safety Law, indicating that investors expect more costs of compliance for the sub-industries with lower levels of food safety. Moreover, CARs are found to be positively correlated with firm size, implying that larger firms may benefit more from this food legislative reform than small ones.
Practical implications
Measuring the impact of regulatory changes on food producers and investors by stock market response could help regulators assess the effectiveness of regulation and amend the law accordingly.
Originality/value
Previous studies seldom empirically examine the effect of Food Safety Laws on China’s food industry and this study attempts to fill this gap, which contributes to extending the understanding of the impact of legislative reform or regulatory changes on related industries.
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This study aims at testing efficiency of the Egyptian stock market at semi-strong level through exploring the impact of the COVID-19 outbreak on Egyptian stock returns.
Abstract
Purpose
This study aims at testing efficiency of the Egyptian stock market at semi-strong level through exploring the impact of the COVID-19 outbreak on Egyptian stock returns.
Design/methodology/approach
The author applied the “Event Study” method that addresses the impact of a particular event or group of events on stock returns, from 12 September 2019 to 5 April 2020, choosing Egyptian Stock Exchange (EGX) 100 companies which constitute constitutes the highest-level 100 companies in terms of liquidity and activity.
Findings
The study found inefficiency of the Egyptian stock market at the semistrong level, as the declaration of the COVID-19 has a negative insignificant effect on stock returns, whether on the day of the declaration, before or after it, The underlying reasons for these results can be referred to the idea that can be explained that investors are noise trading when making their investment decisions.
Research limitations/implications
There are two limitations to the interface of this paper. The first one is the short-term impact of COVID-19, using 141 days, and then it is not clear in the research the long-term impact of events related to the epidemic. Secondly, because the author deals with a short period term, the author does not test the characteristics of the company or any other major events that may affect the stock returns of the companies under study.
Originality/value
This adds to the finance literature on the impact of the COVID-19 announcement on stock returns in the context of African countries. The explanation of the interconnection of the COVID-19 announcement on stock returns in Egypt.
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Cheng-Kui Huang, Kwo-Whei Lee and Chien-Huei Chou
Since business competition has become more intense throughout the world, most enterprises are seeking to engage in business cooperation with other partners in order to enhance…
Abstract
Purpose
Since business competition has become more intense throughout the world, most enterprises are seeking to engage in business cooperation with other partners in order to enhance their competitive strengths. However, they do not necessarily develop mature information technologies’ (ITs) capabilities and skills internally but rather outsource them to IT providers. Therefore, the benefits received by firms which adopt the approach of business cooperation with IT providers have become an interesting issue for managers and shareholders.
Design/methodology/approach
This study adopted an event study methodology for apprising the short-term business value from the stock market. The authors predicted that investors will react as they receive news coverage about the strategy of business cooperation between outsourcing firms and an IT provider, International Business Machines (IBM) Corporation. The authors then collected all news coverage regarding the firms which had announced business cooperation with IBM and observed different types of abnormal returns.
Findings
On analyzing 53 announcements of cooperation with IBM from 2008 to 2016, the authors found that the announcement of business cooperation had a significantly positive influence on companies' market value.
Originality/value
To the best of the authors’ knowledge, this is the first study to investigate the issue for market reaction to the announcement of business cooperation with IBM.
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Yingbo Xu, Wei Liu, Tong He and Sang-Bing Tsai
“Metaverse” has become a buzzword in the Chinese stock market. However, it remains unclear whether a firm's metaverse-related announcements will elicit positive stock market…
Abstract
Purpose
“Metaverse” has become a buzzword in the Chinese stock market. However, it remains unclear whether a firm's metaverse-related announcements will elicit positive stock market reactions. Whether and how stakeholder reactions are influenced by a firm's metaverse-related readiness also needs to be further explored. This study aims to discuss the aforementioned objective.
Design/methodology/approach
The authors derived a set of factors based on readiness theory and business ecosystem literature and extend them into the context of the metaverse. The authors used a sample of 642 Chinese listed firms in 2021 to investigate the hypotheses through the event study.
Findings
The study’s findings show that metaverse coverage induces a positive stock market reaction, but it is subject to three moderating effects. The authors introduce the novel concepts of IT readiness, ecosystem readiness and digital infrastructure readiness as the moderators. Stakeholders perceive metaverse announcements as overhyped, and stock prices do not fluctuate significantly after a metaverse announcement when the listed firms are not ready to embrace the metaverse.
Originality/value
This study is one of the first that introduces the event study method into the metaverse research, and it reveals that different levels of readiness influence stakeholders' evaluations and reactions to corporate metaverse coverage. This provides empirical evidence on metaverse development in China from the stock market's perspective.
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