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Article

Qian Wang and Eric W.T. Ngai

This study aims to provide an objective analysis of the state-of-the-art and intellectual development of publications related to event study methodology in business research.

Abstract

Purpose

This study aims to provide an objective analysis of the state-of-the-art and intellectual development of publications related to event study methodology in business research.

Design/methodology/approach

The sample includes 1,219 papers related to event study methodology, covering all business disciplines and spanning 34 years from 1983 to 2016.

Findings

Through three stages of primary analysis, namely, initial sample, citation and co-citation analyses, the authors identified the publication trends, supplementary techniques, influential publications and intellectual clusters in the area of event study methodology in business.

Research limitations/implications

The findings serve as a benchmark for the extensive literature related to event study methodology in business and may facilitate the transference of the amassed useful techniques among disciplines and the identification of future research directions.

Originality/value

The current study represents as a pioneering effort to review event study-related publications using bibliometric analysis.

Details

Industrial Management & Data Systems, vol. 120 no. 10
Type: Research Article
ISSN: 0263-5577

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Article

Tarcisio da Graca and Robert Masson

The purpose of this paper is to demonstrate with real data the enhanced statistical power of a GLS‐based event study methodology that requires the same input data as the…

Abstract

Purpose

The purpose of this paper is to demonstrate with real data the enhanced statistical power of a GLS‐based event study methodology that requires the same input data as the traditional tests.

Design/methodology/approach

The paper uses full sample, subsample and simulated modified sample analyses to compare the statistical power of the GLS methodology with traditional methods.

Findings

The paper finds that it is often the case that traditional tests will not reject the null when a GLS‐based test may (strongly) reject the null. The power of the former is poor.

Practical implications

There are many published event studies where the null is not rejected. This may be because of the phenomenon being tested but it may also be because of the lack of power of traditional estimators. Hence, rerunning them with the authors' more powerful test is likely to reject some currently well‐accepted null hypotheses of no event effect, stimulating new research ideas. Moreover, as individual stocks have become more volatile, the additional power of the authors' methodology to detect abnormal performance for recent and future events becomes even more important.

Originality/value

There are more than 500 event studies in the top finance journals, which can broadly be split into two subgroups: contemporaneous shocks like changes in regulation and non‐contemporaneous events like mergers. GLS contemporaneous modeling of covariances in the former showed little efficiency gains. The paper's GLS modeling of variances for the latter demonstrates potentially huge effects. Practitioners should be skeptical of prior results accepting the null of no event effect and incorporate GLS to be confident of their future findings.

Details

Review of Accounting and Finance, vol. 11 no. 2
Type: Research Article
ISSN: 1475-7702

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Book part

Kimberly M. Ellis and Phyllis Y. Keys

To explain for doctoral students and new faculty, the appropriate techniques for using event study methods while identifying problems that make the method difficult for…

Abstract

Purpose

To explain for doctoral students and new faculty, the appropriate techniques for using event study methods while identifying problems that make the method difficult for use in the context of African markets.

Methodology/approach

We review the finance and strategy literature on event studies, provide an illustrative example of the technique, summarize the prior use of the method in research using African samples, and indicate remedies for problems encountered when using the technique in African markets.

Findings

We find limited use of the technique in African markets due to limited data availability which is attributable to problems of infrequent trading, thin markets, and inadequate access to free data.

Research limitations

Our review of the literature on event studies using African data is limited to English-language journals and sources accessible through our library research databases.

Practical implications

More often, researchers will need to use nonparametric techniques to evaluate market responses for companies in or events affecting the African markets.

Originality/value of the chapter

We make a contribution with this chapter by giving a more detailed description of event study methods and by identifying solutions to problems in using the technique in African markets.

Details

Advancing Research Methodology in the African Context: Techniques, Methods, and Designs
Type: Book
ISBN: 978-1-78441-489-4

Keywords

Content available
Article

Ali Murad Syed and Ishtiaq Ahmad Bajwa

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…

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Social implications

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.

Originality/value

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.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 3
Type: Research Article
ISSN: 1753-8394

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Article

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…

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.

Details

Journal of Enterprise Information Management, vol. 30 no. 6
Type: Research Article
ISSN: 1741-0398

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Article

Neophytos Lambertides

The aim of this paper is to examine the long‐term abnormal returns of firms that have experienced chief executive officer (CEO) succession. According to Chief Executive

Abstract

Purpose

The aim of this paper is to examine the long‐term abnormal returns of firms that have experienced chief executive officer (CEO) succession. According to Chief Executive magazine, directors rank CEO succession as the second most important issue their firms face, the first being strategic planning.

Design/methodology/approach

This study examines 202 CEO succession announcements. It utilizes two returns‐generating models to calculate abnormal returns for two estimation windows of 200 trading days before and after the succession event.

Findings

The results support the theory first developed by Guest (1962) that succession is an adaptive event. Specifically, this study shows that firms that experience a CEO change have positive abnormal returns, suggesting that new CEOs raise the firm performance. Moreover, this study shows that firms that experience CEO change due to CEO retirement improve firm performance in the post‐succession period, whereas succession due to CEO sudden death or illness seems to have no direct effect on the long‐term performance of these firms. Finally, this study provides strong evidence that outside successions help firms raise performance more than inside successions.

Research limitations/implications

Like any empirical eventstudy, the validity of the results depends on the absence of confounding events. Future research could be to explore the relationship between the information content of the CEO succession announcement and the market reaction.

Originality/value

This paper is believed to be the first attempt to empirically examine the relation between CEO turnover and long‐term firm performance through the analysis of the successor's origin and of the force initiating the change, by using an event study methodology.

Details

Managerial Finance, vol. 35 no. 7
Type: Research Article
ISSN: 0307-4358

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Article

Jordan French

The purpose of this paper is to provide insight to practitioners who wish to forecast market returns based on event occurrences.

Abstract

Purpose

The purpose of this paper is to provide insight to practitioners who wish to forecast market returns based on event occurrences.

Design/methodology/approach

Using 64 distinct events that reoccurred from 2007 to 2016 in six different nations of both developing and developed economies, this study used an event study methodology to test whether or not sentiment impacted market returns.

Findings

This study found that investor sentiment did impact market returns. Furthermore, events that were in developed economies or were negative impacted the market returns more than events that are in developing economies or positive. The study also provides important information on the speed of price adjustment to new information. The events selected include festive holidays, bombings, natural disasters and sports matches, among other events which had been found to alter mood. This paper also found no empirical difference between using the statistical mean and economic capital asset pricing models. However, the Wilcoxon rank test did provide more significant events than the more conservative Corrado rank test.

Originality/value

Most comprehensive investor sentiment impact on market returns paper using an event study methodology. The results have implications for those who wish to forecast market returns based on event occurrences.

Details

foresight, vol. 20 no. 5
Type: Research Article
ISSN: 1463-6689

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Article

Aswin Alora and Mukesh Kumar Barua

Supply chain disruptions can have severe negative consequences on companies. However, studies measuring the financial impacts of supply chain disruptions are largely…

Abstract

Purpose

Supply chain disruptions can have severe negative consequences on companies. However, studies measuring the financial impacts of supply chain disruptions are largely confined to developed nations and large companies. Therefore, this study aims to analyze the impact of supply chain disruption on small companies in the context of an emerging nation. Further, an attempt has been made to classify supply chain disruptions and measure its impact by its type.

Design/methodology/approach

In this research, the event study on 335 supply chain disruption events for a 10 year period starting from 2009 to 2019 has been used.

Findings

The results state that the Indian small and medium companies lost −4.49% of shareholder wealth in disruption. The findings also indicate that the financial and environmental disruptions can have severe effect on shareholder wealth as compared to other category.

Research limitations/implications

The study is confined to a developing country. Considering multiple countries can provide comparative results and therefore a global consensus could be achieved.

Practical implications

The outcomes of the results help managers to plan and prioritize supply chain disruptions, regulatory authorities can plug any possible insider trading practices for small companies in the event of supply chain disruptions. Investors can plan and take prudent investing decisions based on the nature of the disruptions.

Originality/value

To the best of the knowledge, this is the first study measuring the supply chain disruption effects on smaller companies in an emerging nation. The study is also novel in incorporating financial disruptions and measuring source wise impact on shareholder wealth.

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Book part

Jakob Lyngsø Jørgensen and Christoffer Breum Nielsen

The purpose of this study is to contribute to existing financial literature within a less researched area through a systematic, organized, and holistic approach. This study

Abstract

The purpose of this study is to contribute to existing financial literature within a less researched area through a systematic, organized, and holistic approach. This study advances the notion of considering terrorist attacks as a heterogeneous group of events by employing a multidimensional approach. The event study methodology was used to investigate the impact of 46 terrorist attacks occurring on the soil of OECD countries since 1990 on stock markets in US, UK, Spain, and Denmark. Thereby, terrorist attacks are considered as events conveying information to financial markets, which is processed by investors and subsequently reflected in security prices. This chapter is the first contribution within financial literature to distinguish and categorize terrorist attacks through several dimensions and investigate the effect of various characteristics on stock markets. The multidimensional analytical approach consisted of six dimensions, which included an examination of the national stock markets, differences across industries, the underlying threat characteristics, the size of the attack, and the development over time and geospatial aspects. It is concluded that terrorist attacks exhibiting international threat characteristics result in significantly larger and boundary spanning negative abnormal returns, which impact stock markets beyond the country in which the attack occurred. Additionally, the size of the terrorist attack amplifies the negative impact on stock markets. However, while the impact on stock markets was found to be immediate indicating that stock markets are quick and efficient in absorbing new information, the negative impact is likely to evaporate within five trading days.

Details

The Responsive Global Organization
Type: Book
ISBN: 978-1-78714-831-4

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Article

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…

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.

Details

Managerial Finance, vol. 46 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

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