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1 – 10 of over 8000This paper aims to contribute to the existing finance literature on capital structure by examining the long‐run equity performance of the firms that employ extremely conservative…
Abstract
Purpose
This paper aims to contribute to the existing finance literature on capital structure by examining the long‐run equity performance of the firms that employ extremely conservative debt policy – zero leverage for three or five consecutive years.
Design/methodology/approach
This paper measures the long‐run equity performance of zero‐debt firms with two commonly used methods: the buy‐and‐hold abnormal returns following Barber and Lyon, and the Fama and French three‐factor models. The four‐factor models are also used to check the robustness of the result.
Findings
The authors find that zero‐debt firms perform better over the long run based on the calendar‐time portfolio regressions after adjusting for Fama‐French factors. The results indicate that the persistent lack of debt in the capital structure seems an important determinant of stock returns, and the impact of extreme conservatism in debt policy is not fully captured by the theoretical and empirical risk proxies, such as beta, size, book‐to‐market, and momentum.
Practical implications
The benefit of the present article for investors and portfolio managers is the identification of an additional important determinant of stock returns.
Originality/value
This paper is the first article that thoroughly investigates the long‐run stock returns of the firms that choose to stay debt free over an extended period of time.
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Ming‐Long Lee and Kevin Chiang
The US real estate investment trust (REIT) market experienced a structural change in the early 1990s. This paper aims to examine the following two issues: is the equity REIT…
Abstract
Purpose
The US real estate investment trust (REIT) market experienced a structural change in the early 1990s. This paper aims to examine the following two issues: is the equity REIT market movement positively linked with the stock market movement in the long‐run? If so, how does the long‐run relation between the two markets change after the early 1990s?
Design/methodology/approach
This paper examines the long‐run relation between REIT prices and common stock prices within a four‐price system, i.e., REIT prices, common stock prices, bond prices, and private real estate prices, for two sub‐periods: 1978‐1993 and 1994‐2008. This study uses the more advanced Johansen procedure, which is more robust than the Engle‐Granger procedure, to test the co‐integrated relation.
Findings
The results show that REITs behave like common stocks during the earlier 1978‐1993 sub‐period. In contrast, REITs become less like common stock and more like private real estate after the early 1990s structural change. These results are at odds with the conclusion of Glascock et al., who examine the relationship between REITs and common stocks within a bi‐variate system with the Engle‐Granger procedure.
Originality/value
The paper, as far as the authors are aware, is the first study focusing on the long‐run relation between REIT prices and other asset prices within a multi‐price system. With a more complete price system and a more robust estimation method, this study is the first to document formally that the impressive growth and maturation of the REIT market since the early 1990s has made REITs less like common stocks and more like private real estate in the long‐run. The immediate implication is that REITs are capable of providing investors, such as immature defined benefit pension plans, real estate exposures in the long‐run.
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Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some…
Abstract
Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some legal aspects concerning MNEs, cyberspace and e‐commerce as the means of expression of the digital economy. The whole effort of the author is focused on the examination of various aspects of MNEs and their impact upon globalisation and vice versa and how and if we are moving towards a global digital economy.
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Wolfgang Bessler and Stefan Thies
The objective of this study is to investigate the long‐run performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some…
Abstract
Purpose
The objective of this study is to investigate the long‐run performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some IPO firms have substantial positive and others have substantial negative long‐run buy‐and‐hold abnormal returns.
Design/methodology/approach
The paper approaches this problem by differentiating the abnormal return patterns by the following criteria: benchmark, year of going public, security design, money raised, market value and magnitude of underpricing.
Findings
The empirical findings suggest that the subsequent financing activity in the equity market is the most important factor for determining the future performance of an IPO. This variable separates the out‐performers from the under‐performers. Thus, only successful firms have the opportunity to raise additional funds in the equity market through a seasoned equity offering.
Research limitations/implications
Future research should concentrate on investigating whether the introduction of new stock market segments in Germany has changed the long‐run performance of IPOs.
Practical implications
The results suggest that firms with a superior performance have the opportunity to raise additional equity whereas the poor performers do not get a second chance to sell equity to the public. This means that firms have to earn at least their cost of capital in order to receive additional funding.
Originality/value
Compared to other research, this study explains the significant difference in long‐run performance between two groups of IPOs based on the future financing decision. This finding offers new insights to both academics and practitioners alike.
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Anlin Chen, Li‐Wei Chen and Lanfeng Kao
The purpose of this paper is to examine the long‐run performance of initial public offerings (IPOs) in Taiwan with a five‐factor model on a calendar time basis.
Abstract
Purpose
The purpose of this paper is to examine the long‐run performance of initial public offerings (IPOs) in Taiwan with a five‐factor model on a calendar time basis.
Design/methodology/approach
Besides the Fama‐French three factors, the paper also incorporates leverage and liquidity into the factor model to measure IPO five‐year performance. The sample consists of 261 IPOs issued in Taiwan over‐the‐counter during 1991 and 2002. The actual data cover the period from January 1991 to December 2007.
Findings
Contrary to findings of previous studies on US IPO markets, the paper finds that Taiwan IPOs experience better long‐run performance than the market even after adjusting for the common factors in the capital markets.
Originality/value
This paper argues that survival rate of Taiwan IPOs would be the reason why Taiwan IPOs do not underperform in the long run.
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Robert Martin Hull, Sungkyu Kwak and Rosemary Walker
The article aims to explore if stock derivative types (stock options and stock warrants) are associated with stock returns for firms undergoing seasoned equity offerings (SEOs).
Abstract
Purpose
The article aims to explore if stock derivative types (stock options and stock warrants) are associated with stock returns for firms undergoing seasoned equity offerings (SEOs).
Design/methodology/approach
The authors regress stock returns against stock derivatives for periods around SEO announcements with standard errors clustered at the month level.
Findings
The authors find that lower stock derivatives holdings for the fiscal year after the SEO are associated with superior pre-SEO returns. This can be explained by owners exercising their derivatives to capitalize on the pre-SEO price run-up. The authors find that greater stock option holdings by insiders for the fiscal year after the SEO are associated with superior post-SEO returns for up to ten years after the SEO announcement. This new finding does not hold for stock warrants.
Research limitations/implications
Stock derivatives are supplied by Capital IQ. Given their description, the authors infer that stock options are owned largely by insiders. Thus, the insider conclusions for stock options depend on this implication.
Practical implications
Stock options and stock warrants can be used strategically to reward stock derivative owners of strong performing firms for past performance. Stock options can be used to motivate insiders (primarily key executives) to achieve superior future performance.
Originality/value
This study is unique in comparing the influence of holdings for stock options and stock warrants on stock price performance around SEOs. The authors show that the sign of the association depends on whether the test includes pre-SEO periods.
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Thi-Ha-Trang Dang and Shao-Chi Chang
This study aims to examine and analyze the determinants of the stock market performance after firms announce sustainable supply chain management (SSCM) practices.
Abstract
Purpose
This study aims to examine and analyze the determinants of the stock market performance after firms announce sustainable supply chain management (SSCM) practices.
Design/methodology/approach
The study focuses on the long-run stock performance of firms announcing SSCM investments. The authors collected a sample of 280 SSCM announcements from 2010 to 2017 and estimated the buy-and-hold abnormal stock returns up to three years following the announcements. Numerous analyses were conducted to analyze the effect of environmental and social sustainability on long-run stock returns.
Findings
The findings show a significantly positive stock performance in the three-year period after announcements. Moreover, the evidence indicates that the post-announcement abnormal stock return has an inverted-U relationship with corporate environmental sustainability but not with corporate social sustainability. Finally, whether firms expand the firms' corporate sustainability strength to SSCM practices or not, firms secure long-run wealth as long as SSCM programs are carried out.
Research limitations/implications
The research focuses on the stock performance of USA public firms to draw conclusions about firms' market performance. This research leaves out the private and born-sustainable firms.
Practical implications
The findings offer firms incentives to invest in SSCM and suggest the magnitude of value provided by each sustainability type to help firms set firms' supply chain (SC) sustainable investment level.
Originality/value
The study is the first to investigate the long-run stock performance of firms announcing SSCM practices and the contribution of different sustainability types to stock performance.
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Robert M. Hull, Sungkyu Kwak and Rosemary Walker
The purpose of this paper is to explore if hedge fund variables (HFVs) are associated with long-run compounded raw returns (CRRs) for seasoned equity offering (SEO) firms for a…
Abstract
Purpose
The purpose of this paper is to explore if hedge fund variables (HFVs) are associated with long-run compounded raw returns (CRRs) for seasoned equity offering (SEO) firms for a six-year window around the offering month for firms undergoing SEOs.
Design/methodology/approach
The event study methodology is used to calculate long-run CRRs that are used in a regression model as dependent variables. Independent variables include HFVs and nonhedge fund variables (NFVs) with standard errors clustered at the month level.
Findings
Three new long-run findings, consistent with recent short-run findings, are offered. First, HFVs are significantly associated with long-run CRRs for SEO firms. Second, HFVs perform competitively compared to NFVs. Third, a potential omitted-variable bias results if HFVs are not used.
Research limitations/implications
This research assumes that hedge fund managers can identify good (poor) performing SEO firm that allow for profitable long (short) positions. The proportion of hedge funds using a strategy will change in the hypothesized manner needed to make profit.
Practical implications
Hedge fund managers can use long-run strategies to capitalize on price movements around significant corporate events.
Social implications
Larger institutional traders have investment advantages due to superior knowledge and greater ability to manipulate prices.
Originality/value
This research is the first study to detail the significant association between hedge fund stratagems and long-run stock returns for firms undergoing key corporate events. This study demonstrates the need to consider hedge fund strategies when trying to understand stock price movements.
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Soo‐Wah Low and Noor Azlan Ghazali
The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur…
Abstract
Purpose
The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur composite index (KLCI) over the period 1996‐2000.
Design/methodology/approach
Cointegration analyses are used to identify the long run relationship between unit trust funds and the stock market index while Granger causality tests are used to measure the short run price linkages.
Findings
Cointegration results show that the long run pricing performance of the unit trust funds differs significantly from that of the KLCI. Interestingly, the findings also reveal that two index funds are found not to be cointegrated with the stock market index. In the short run, one‐way Granger causality test shows that changes in the KLCI Granger causes changes in the unit trust funds. This suggests that fund managers are responding to the past changes in the stock market index over the short run.
Research limitations/implications
The findings of non‐cointegration between passively managed funds and the KLCI are restricted to only two index funds in the sample among other actively managed funds. Since there were not enough index funds available over the study period, future research should include more index funds in the analysis.
Practical implications
In the short run, investors may gather information on the changes in their portfolio composition by observing the movement in the KLCI.
Originality/value
The paper represents the first evidence on the pricing relationships between unit trust funds and the local stock market index and the findings are important to investors in terms of their investment strategies.
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Ahmed A. El-Masry and Osama M. Badr
This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two…
Abstract
Purpose
This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.
Design/methodology/approach
In this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.
Findings
The results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.
Research limitations/implications
As this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.
Practical implications
The existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.
Originality/value
This paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.
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