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1 – 10 of over 2000
Article
Publication date: 6 June 2022

Yanlin Sun, Siyu Liu and Shoudong Chen

This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better…

Abstract

Purpose

This paper aims to identify the direct impact of fund style drift on the risk of stock price collapse and the intermediary mechanism of financial risk, so as to better protect the interests of minority investors.

Design/methodology/approach

This paper takes all the non-financial companies on the Chinese Growth Enterprise Market from 2011 to 2020 as study object and selects securities investment funds of their top ten circulation stocks to study the relationship between fund style drift and stock price crash risk.

Findings

Fund style drift is likely to add stock price crash risk. Financial risk is positively correlated with stock price crash risk. Fund style drift affects stock price crash risk via the mediating effect of financial risk, and fund style drift and financial risk have a marked impact on the stock price crash risk of non-state enterprises, yet a non-significant impact on that of state-owned enterprises.

Originality/value

This paper links fund style drift with stock price crash risk in an exploratory manner and enriches the study perspectives of relationship between institutional investors’ behaviors and stock price crash risk, thus enjoying certain academic value. On the one hand, it furnishes a new approach to the academic frontier issue concerning financial risk and stock price crash risk, and proves that financial risk is positively correlated with stock price crash risk. On the other hand, it regards financial risk as a mediating variable of fund style drift for stock price crash risk and further explores different influencing mechanism of institutional investors’ behaviors.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 9 September 2011

Haifeng You and Xiao‐Jun Zhang

This study aims to examine whether limited attention leads to the market underreaction to earnings announcement and 10‐K filings.

Abstract

Purpose

This study aims to examine whether limited attention leads to the market underreaction to earnings announcement and 10‐K filings.

Design/methodology/approach

This is an empirical study involving statistical analysis of a large sample of data, obtained from Compustat, CRSP and Xignite Inc. Both portfolio analysis and multivariate regressions are used in hypotheses testing.

Findings

The following key findings are presented in the paper. First, we show that among large firms, investors under‐react more to the information contained in 10‐K filings than earnings announcements. Second, underreaction to earnings announcements tends to be stronger for small firms than large firms. Third, we find that companies report their earnings and 10‐Ks earlier when there is a higher demand for such information, and document a negative relationship between the degree of underreaction and the timeliness of such information release. Finally, we show that the recent ruling by SEC to accelerate 10‐K filing has little impact on the degree of investors' underreaction to 10‐K information.

Research limitations/implications

The findings of this study suggest that investors' failure to devote enough attention to an economic event leads to underreaction, and the degree of underreaction is negatively correlated with the amount of investor attention.

Practical implications

Investors need to periodically reassess the informational contents of economic events, and allocate their attention accordingly, in order to avoid underreaction.

Originality/value

This study analyzes and the roles of limited attention in determining the degree of investor underreaction to earnings announcement and 10‐K filings. The comparison of the two related but distinct financial reporting events yields interesting insights.

Details

China Finance Review International, vol. 1 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 9 February 2015

Thanh T. Nguyen, Ninon K. Sutton and Dung (June) Pham

The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase…

Abstract

Purpose

The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year.

Design/methodology/approach

The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns.

Findings

The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise.

Social implications

The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise.

Originality/value

The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

Details

Managerial Finance, vol. 41 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 8 February 2016

John D. Finnerty, Shantaram Hegde and Chris B Malone

The purpose of this paper is to examine the hypothesis that a period of sustained supernormal firm performance (for up to five years before fraud commission) creates…

1378

Abstract

Purpose

The purpose of this paper is to examine the hypothesis that a period of sustained supernormal firm performance (for up to five years before fraud commission) creates financial pressure on actors/agents so they have a propensity to behave fraudulently to keep the good times (apparently) rolling.

Design/methodology/approach

Applying the Fama and French (1993) three-factor model using a range of calendar time portfolio methodologies, the authors measure abnormal drifts in stock performance in periods up to five years before alleged fraud commission dates. The authors examine a sample of 561 US firms subject to enforcement actions initiated by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) over 1968-2009.

Findings

The authors find that sustained firm-specific positive stock price performance for up to five years followed by the almost inevitable adverse shock, which eventually brings the good times to an end, generally precedes corporate fraud. Fraud occurs when firm managers engage in misconduct in a misguided attempt to keep the good times (apparently) rolling despite the negative shock.

Research limitations/implications

The sample is restricted to firms with trading histories on the stock market prior to the misconduct, and to firms contained in the Federal Securities Regulation database of US firms subject to enforcement actions initiated by the SEC and the DOJ over 1968-2009.

Practical implications

The desire to keep the good times rolling appears to be a very important driver of fraudulent behavior, even after controlling for the executive compensation incentive effects and business cycle effects emphasized in prior studies. The robust findings of positive abnormal returns for up to five years preceding initial fraud commission suggest that regulators and investors would be well-advised to scrutinize the behavior of firms that exhibit surprisingly persistent superior performance over an extended period. If the financial results appear too good to be true, a closer examination might just reveal that they indeed are.

Social implications

While most investors generally like to see the “good times keep rolling” this pressure can create ethical dilemmas for managers.

Originality/value

Unlike most other papers in this area of the literature, which concentrate on the pre-fraud disclosure, the authors investigate the firm’s performance in the pre-fraud commission period. The authors find that the commission of the alleged fraud is preceded by a sustained period of surprisingly good performance of up to five years in length. The authors believe that the paper provides empirical evidence that supports the hypothesis that a period of sustained supernormal firm performance (for up to five years before fraud commission) creates financial pressure on actors/agents so they have a propensity to behave fraudulently to keep the good times (apparently) rolling.

Details

Managerial Finance, vol. 42 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 5 May 2015

Yi-Ching Chen, Tawei Wang and Jia-Lang Seng

The purpose of this paper is to investigate the relation between voluntary accounting changes (VACs) and post-earnings announcement drift. In addition, the authors examine…

Abstract

Purpose

The purpose of this paper is to investigate the relation between voluntary accounting changes (VACs) and post-earnings announcement drift. In addition, the authors examine how accounting choice heterogeneity moderates such association.

Design/methodology/approach

The authors collect VAC firms in the US in the period from 1994 to 2008 and identify the heterogeneity of accounting choices between VAC and non-VAC firms. To test the hypotheses, the authors consider a 10-Q filing window and a post-filing drift window. The 10-Q filing window begins from one trading day before and ends on one trading day after the quarterly report filing date. The post-filing drift window begins from two trading days after the filing date and ends on 60 trading days with respect to the earnings announcement date.

Findings

The results demonstrate that, overall, VAC does not affect the three-day market reactions to 10-Q filings. However, after taking into account the accounting choice heterogeneity, the authors observe that VAC is positively related to the market reactions to surprises and negatively associated with the post-filing period drift.

Originality/value

The paper contributes to the literature by showing that VACs affect the market’s responses to 10-Q filings only when such change results in different accounting practices compared to the VAC firm’s major competitors. Furthermore, given the change with heterogeneity requires more time to process, VACs are related to post-filing announcement drift.

Details

Asian Review of Accounting, vol. 23 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Open Access
Article
Publication date: 30 June 2021

Shreya Sharda

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian…

1031

Abstract

Purpose

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian context. The efficient market hypothesis, specifically, its semi-strong form, is tested for “Buy” stock recommendations published in the electronic version of Business Standard. The crucial issue is, are there any abnormal returns that can be earned following a recommendation? If so, how quickly do prices incorporate the information value of these recommendations? It tests the impact of analyst recommendations on average abnormal returns (AARs) and standardized abnormal returns (SRs) to determine their statistical significance.

Design/methodology/approach

Using a sample of stock recommendations published in the e-version of Business Standard, the event study methodology is used to determine whether AARs and SRs are significantly different from zero for the duration of the event window by using several significance tests.

Findings

The findings indicate a marginal opportunity for profit in the short term, restricted to the event day. However, the effect does not persist, i.e. the market is efficient in its semi-strong form implying that investors cannot consistently earn abnormal returns by following analysts’ recommendations. Post the event date, the market reaction to analyst recommendations becomes positive, however, insignificant until the ninth day after the recommendation providing support to the underreaction hypothesis given by Shliefer (2000) and post-recommendation price drift documented by Womack (1996). The study contributes by using different statistical tests to determine the significance of returns.

Practical implications

There are important implications for traders, investors and portfolio managers. The speed with which market prices incorporate publicly available information is useful in formulating trading strategies. However, stock characteristics such as market capitalization, volatility and level of analyst coverage need to be incorporated while making investment decisions.

Originality/value

The study contributes by using different statistical tests to determine the significance of returns.

Details

Vilakshan - XIMB Journal of Management, vol. 19 no. 1
Type: Research Article
ISSN: 0973-1954

Keywords

Article
Publication date: 11 November 2020

Irfan Safdar

What explains patterns in stock prices is an important question. One such pattern, price momentum, is a well-known capital markets anomaly where recent stock price

Abstract

Purpose

What explains patterns in stock prices is an important question. One such pattern, price momentum, is a well-known capital markets anomaly where recent stock price performance appears to continue into the future. This momentum is frequently thought to reflect delayed reaction by investors to unspecified information (i.e. underreaction). This study aims to provide a useful insight regarding momentum: potential mispricing related to accounting fundamentals appears to conceal longer-term reversals in price momentum. Controlling for these fundamentals reveals that price momentum reverses, indicating that investor overreaction is a potentially important source of stock price momentum. The evidence presented in this study emphasizes the importance of decoupling momentum and accounting fundamentals to achieve a more complete understanding of what explains stock price momentum.

Design/methodology/approach

This study explores this question by examining the longer-term performance of momentum stocks in the US market after decoupling it from performance related to accounting fundamentals using returns to fundamentals-based factors as controls in time series regressions.

Findings

This study finds evidence of clear reversals in the remaining price momentum. These reversals provide a new insight into the momentum effect because they imply that the component of price momentum not traceable to accounting fundamentals reflects investor overreaction rather than underreaction.

Originality/value

The findings indicate that the underlying nature of the information driving price movements is important to achieving a complete understanding of what explains price momentum. To the best of the author’s knowledge, no other study has examined the behavior of stock price momentum while controlling for accounting fundamentals.

Details

Pacific Accounting Review, vol. 32 no. 4
Type: Research Article
ISSN: 0114-0582

Keywords

Abstract

Details

Understanding Financial Risk Management, Second Edition
Type: Book
ISBN: 978-1-78973-794-3

Article
Publication date: 2 August 2021

Jianmei Liu

As an important part of the disclosure of listed companies' annual reports, MD&A will disclose some "bad news" about the company. The purpose of this paper is to study…

Abstract

Purpose

As an important part of the disclosure of listed companies' annual reports, MD&A will disclose some "bad news" about the company. The purpose of this paper is to study whether such "bad news" can reduce information asymmetry and alleviate the risk of stock price crash remains to be seen.

Design/methodology/approach

Based on the sample of A-share listed companies from 2007 to 2016, the authors examine whether the negative information in MD&A could reduce stock price crash risk.

Findings

It is found that the negative information in MD&A does not reduce future crash, which indicates that the negative information in MD&A does not alleviate the information asymmetry. Further, it is also found this is due to the low readability of negative information which leads to the negative information not successfully released into the market timely. Only highly readable negative information can alleviate information asymmetry and suppress crash risk. In addition, the authors also find in the companies with more investor surveys negative tone is negatively correlated with crash risk, which means that investor surveys could help investors interpret the negative information in MD&A and alleviate stock price crash risk.

Practical implications

The practical significance of this article: this paper suggests that investors should carefully identify the quality of negative information in MD&A and pay attention to other quality characteristics besides credibility. This paper suggests that the regulator should pay attention not only to whether to disclose and the amount of disclosure but also to the quality of information disclosure, such as readability, so as to restrict management's strategic behavior in information disclosure.

Originality/value

First, different from previous studies on the impact of information disclosure on crash risk, this paper directly explores the impact of information in MD&A on stock price crash risk from the perspective of negative information disclosure that management most want to hide. It supplements the literature on the impact of information disclosure on stock price crash risk. Second, this paper studies the interaction between information tone and readability and its impact on the risk of stock price crash. Some studies believe that the credibility of negative news is higher and investors' reaction may be stronger. However, this paper finds that the disclosure of negative information may not be absorbed by the market because of the low readability. Third, this paper finds that investor surveys can help information users to interpret negative information and alleviate the risk of stock price crash, which shows that information disclosure of different channels will complement each other and improve information efficiency. Therefore, it advocates different information disclosure channels which has important practical significance for improving market pricing efficiency and reducing investment decision-making risk.

Details

Nankai Business Review International, vol. 12 no. 4
Type: Research Article
ISSN: 2040-8749

Keywords

Article
Publication date: 13 July 2015

Jongsoo Choi

The purpose of this paper is to examine the stock market reactions at the time of new construction contract winning announcements to explore whether the managements made…

Abstract

Purpose

The purpose of this paper is to examine the stock market reactions at the time of new construction contract winning announcements to explore whether the managements made wise bidding decisions and thus create values.

Design/methodology/approach

A total of 813 new contracts awarded to publicly traded US construction firms for the years 2000 through 2009 are screened and these are analyzed by applying event study methodology. This paper estimates the effect of an event on stock market’s responses, using cumulative abnormal returns (CARs), and the CAR values are estimated for four types of windows: days 0 (i.e. the day of the event announcement), (−1, +1), (−2, +2), and (−3, +3). The market responses are further subdivided according to such variables as the project type, owner type, project location, work scope, and bidder size.

Findings

The results of this study show that the stock market did not curse contract winners by positively responding to the announcements of new contract awards. The sample firms’ market value, on average, is increased by 1.168 percent during the seven-day window period, and is highly significant. In addition, the followings are observed: first, the stock market tends to favor larger contracts over smaller ones; second, small firms’ events receive better market responses than those of large ones; and third, the level of returns varies considerably across the project types. Meanwhile, no statistical differences are observed in CARs for the owner type, work scope, and project location variables.

Research limitations/implications

This study has several limitations. First, potential factors that may have effects on CAR could not be incorporated in the analysis, because a contract award announcement provides only limited information. Second, the level of consistency between stock market responses and the contract’s actual outcomes could not be assessed.

Practical implications

Wise bidding decision has critical implication considering the impact of a new contract award on a firm; a new contract increases the backlog of a firm while it may harm/improve the operating performance or decrease/increase the stockholders’ wealth. Although the overall success level of the current sample, in terms of CARs, is positive and significant, CAR values vary significantly depending on the window period and/or variables. Therefore, managements should exercise careful discretion in selecting a target project and arriving at a bidding decision.

Originality/value

While event study has been widespread for assessing the effect of numerous event types, project award received scarcely any attention. Moreover, it has widely been believed that cost/pricing and contract value are the primary sources for winners’ curse argument. Accordingly, this study can be considered as a seminal work assessing stock market responses to validate winners’ curse argument. This study contributes to the body of knowledge of decision-making discipline. In addition, from a strategic management perspective, the evidence and implications drawn from the analysis results will be valuable resources for bid or no-bid decision making in the project-based industry.

Details

Management Decision, vol. 53 no. 6
Type: Research Article
ISSN: 0025-1747

Keywords

1 – 10 of over 2000