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1 – 10 of 184Yanlin 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 protect the…
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.
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This study examines the relation between the presence of analysts’ long-term growth (LTG) forecasts and the post-earnings-announcement drift (PEAD).
Abstract
Purpose
This study examines the relation between the presence of analysts’ long-term growth (LTG) forecasts and the post-earnings-announcement drift (PEAD).
Design/methodology/approach
Using a sample of firm-quarters from 1995 to 2013, the author conducts various regression analyses.
Findings
The author finds that the magnitude of PEAD is significantly smaller for firms with LTG forecasts. The relationship holds after controlling for a wide range of explanatory variables for PEAD returns or for the presence of LTG forecasts. The author further investigates three nonexclusive hypotheses to explain this relationship. First, LTG forecasts may convey incremental value-relevant information that facilitates investors’ processing of short-term earnings information. Second, the presence of LTG forecasts may indicate superiority in analysts’ short-term forecast ability and identify firms with more efficient short-term forecasts. Third, the presence of LTG forecasts may be associated with cross-sectional differences in the persistence of earnings surprises. The author finds that none of these fully accounts for the negative relationship between the presence of LTG forecasts and PEAD returns. Instead, the relationship may be a result of the presence of LTG forecasts capturing some unobservable firm characteristics beyond those identified in prior studies.
Originality/value
This study contributes to the PEAD literature by identifying a novel analyst-based predictor of the cross-sectional variation in PEAD returns.
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This study focuses on an emerging market, China, and investigates the effects of corporate research and development (R&D) spending and subsidies on stock market reactions to…
Abstract
Purpose
This study focuses on an emerging market, China, and investigates the effects of corporate research and development (R&D) spending and subsidies on stock market reactions to seasoned equity offering (SEO) announcements.
Design/methodology/approach
The study uses a sample of SEOs announced over the period of 2003–2018 in the Chinese A-share market. The cumulative abnormal stock returns (CARs) are adopted to measure the stock market response to SEOs. The R&D spending-to-sales ratio (R&D subsidies) in 2 years before SEO announcements is used to measure the pre-SEO R&D spending (R&D subsidies). The instrumental variable (IV) regression method is applied to address the endogeneity problem in the robustness test.
Findings
This study demonstrates that firms with high R&D spending suffer stock overpricing and experience a negative market reaction when they announce SEOs, but R&D subsidies alleviate stock overpricing and mitigate the negative relationship between R&D spending and SEO market reactions.
Originality/value
Although the prior studies have demonstrated that information asymmetry, which causes stock overpricing, explains negative stock market reactions to SEOs, it is unclear if a certain factor that causes information asymmetry affects SEO market reactions. This study fills this gap and focuses on R&D spending, demonstrating that R&D spending is negatively related to SEO performance.
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Barkha Dhingra, Shallu Batra, Vaibhav Aggarwal, Mahender Yadav and Pankaj Kumar
The increasing globalization and technological advancements have increased the information spillover on stock markets from various variables. However, there is a dearth of a…
Abstract
Purpose
The increasing globalization and technological advancements have increased the information spillover on stock markets from various variables. However, there is a dearth of a comprehensive review of how stock market volatility is influenced by macro and firm-level factors. Therefore, this study aims to fill this gap by systematically reviewing the major factors impacting stock market volatility.
Design/methodology/approach
This study uses a combination of bibliometric and systematic literature review techniques. A data set of 54 articles published in quality journals from the Australian Business Deans Council (ABDC) list is gathered from the Scopus database. This data set is used to determine the leading contributors and contributions. The content analysis of these articles sheds light on the factors influencing market volatility and the potential research directions in this subject area.
Findings
The findings show that researchers in this sector are becoming more interested in studying the association of stock markets with “cryptocurrencies” and “bitcoin” during “COVID-19.” The outcomes of this study indicate that most studies found oil prices, policy uncertainty and investor sentiments have a significant impact on market volatility. However, there were mixed results on the impact of institutional flows and algorithmic trading on stock volatility, and a consensus cannot be established. This study also identifies the gaps and paves the way for future research in this subject area.
Originality/value
This paper fills the gap in the existing literature by comprehensively reviewing the articles on major factors impacting stock market volatility highlighting the theoretical relationship and empirical results.
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Shihui Fan and Yan Zhou
This study aims to investigate the impact of earnings predictability and truthfulness on nonprofessional investors’ investment willingness.
Abstract
Purpose
This study aims to investigate the impact of earnings predictability and truthfulness on nonprofessional investors’ investment willingness.
Design/methodology/approach
Earnings predictability is captured by quarterly earnings autocorrelation, and earnings truthfulness is indicated by real earnings management (REM). The average of investment attractiveness and willingness measures investment willingness. The authors use experiments to isolate the impact of quarterly earnings autocorrelation and REM on investors’ investment behaviors.
Findings
From the 2 × 2 design, the authors observe that investors weight more on earnings predictability than earnings truthfulness.
Research limitations/implications
The generalization of the findings may be constrained for the following reasons. First, the authors use only one proxy, REM, to measure earnings truthfulness. In addition, the authors provide the participants, Amazon Mechanical Turk, with earnings predictability. Results may no longer hold if each participant has different understanding and analysis of earnings predictability.
Practical implications
In periods of unprecedented and severe financial uncertainty (i.e. the COVID-19 pandemic), investors rely more on earnings predictability than on earnings truthfulness. The study assists managers to strategically emphasize the predictability of earnings to attract investors, especially when firms face financial challenges or uncertainty.
Social implications
This study contributes to understanding investor behavior and the critical role of earnings predictability and truthfulness in shaping investment decisions.
Originality/value
This paper contributes to the literature of earnings properties in financial reporting, particularly by shedding light on the nuanced interplay between earnings predictability and earnings truthfulness. The research also demonstrates that elevated earnings autocorrelation indirectly stimulates investment willingness by enhancing the investors’ perception of earnings persistence of targeted firms.
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Omar Farooq, Fatimazahra Bendriouch, Harit Satt and Saad Archane
This paper aims to document the impact of product market competition on the value of analyst coverage.
Abstract
Purpose
This paper aims to document the impact of product market competition on the value of analyst coverage.
Design/methodology/approach
This paper uses variety of estimation techniques (panel regression as well as the quantile regression approaches) and the data for nonfinancial firms from India to document the impact of product market competition on the value of analyst coverage during the period between 2001 and 2018.
Findings
The findings show that the value of analyst coverage is an increasing function of product market competition. The authors argue that better information environment associated with firms operating in industries with high competition improves the quality of research done by analysts, thereby increasing the value of analyst coverage. The study results are consistent across different subsample and remain quantitatively the same when the authors use alternate estimation procedures.
Originality/value
The paper provides evidence regarding the role played by product market competition – a publicly available measure – on the value of research produced by analysts within the context of emerging markets.
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This paper provides a structural model to value startup companies and determine the optimal level of research and development (R&D) spending by these companies.
Abstract
Purpose
This paper provides a structural model to value startup companies and determine the optimal level of research and development (R&D) spending by these companies.
Design/methodology/approach
This paper describes a new variant of float-the-money options, which can act as a financial instrument for financing R&D expenses for a specific time horizon or development stage, allowing the investor to share in the startup's value appreciation over that duration. Another innovation of this paper is that it develops a structural model for evaluating optimal level of R&D spending over a given time horizon. The paper deploys the Gompertz-Cox model for the R&D project outcomes, which facilitates investigation of how increased level of R&D input can enhance the company's value growth.
Findings
The author first introduces a time-varying drift term into standard Black-Scholes model to account for the varying growth rates of the startup at different stages, and the author interprets venture capital's investment in the startup as a “float-the-money” option. The author then incorporates the probabilities of startup failures at multiple stages into their financial valuation. The author gets a closed-form pricing formula for the contingent option of value appreciation. Finally, the author utilizes Cox proportional hazards model to analyze the optimal level of R&D input that maximizes the return on investment.
Research limitations/implications
The integrated contingent claims model links the change in the financial valuation of startups with the incremental R&D spending. The Gompertz-Cox contingency model for R&D success rate is used to quantify the optimal level of R&D input. This model assumption may be simplistic, but nevertheless illustrative.
Practical implications
Once supplemented with actual transaction data, the model can serve as a reference benchmark valuation of new project deals and previously invested projects seeking exit.
Social implications
The integrated structural model can potentially have much wider applications beyond valuation of startup companies. For instance, in valuing a company's risk management, the level of R&D spending in the model can be replaced by the company's budget for risk management. As another promising application, in evaluating a country's economic growth rate in the face of rising climate risks, the level of R&D spending in this paper can be replaced by a country's investment in addressing climate risks.
Originality/value
This paper is the first to develop an integrated valuation model for startups by combining the real-world R&D project contingencies with risk-neutral valuation of the potential payoffs.
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Pushpanjali Kaul and Sangeeta Arora
The present study, by using signaling perspective aims to investigate short-term valuation impact of rebranding announcements (with name change) on stock performance of 160…
Abstract
Purpose
The present study, by using signaling perspective aims to investigate short-term valuation impact of rebranding announcements (with name change) on stock performance of 160 service firms listed on NSE NIFTY-500 over the period of 2000–2019.
Design/methodology/approach
An event study methodology is used to estimate the cumulative abnormal returns (CARs) and its statistical significance is tested with both parametric and non-parametric test-statistics. Separate analysis has been conducted for firms with “major vs minor” and “restructuring vs non-restructuring” name change.
Findings
Findings of the study suggest that rebranding decisions are negatively associated with abnormal returns around the announcement period indicating strong disapproval of name change event. In addition, investors formed strong adverse opinion for major name change firms as compared to minor name change firms. Further, restructured name change sample document larger negative drift than non-restructured sample.
Practical implications
Findings offer substantial repercussions for shareholders who can make informed judgments about name change as a signal of reinventing brand identity. Managers should announce detailed rationale behind name change decision to market for enhancing corporate reputation.
Originality/value
This study contributes to marketing-finance interface literature and is first to examine market reaction to name change of Indian service firms and moreover, made a distinction between major vs minor and restructured vs non-restructured name change events for these firms.
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The challenge of predicting changes in aggregate income and stock prices is one that has occupied the research agendas of economists. This paper aims to use the consumption–income…
Abstract
Purpose
The challenge of predicting changes in aggregate income and stock prices is one that has occupied the research agendas of economists. This paper aims to use the consumption–income ratio and the dividend–price ratio to predict future income and stock prices.
Design/methodology/approach
To examine the stability of the consumption–income ratio and the dividend–price ratio, the authors run a two-variable, two-lag reduced-form VAR in the vein of Cochrane (1994), using a lag of each respective ratio as exogenous to the VAR. Additionally, the authors estimate an AR(4) model for income and prices.
Findings
The consumption–income ratio and the dividend–price ratio remain key to understanding future movements in income and stock prices. The consumption–income ratio significantly predicts future income in the USA, and aggregate income is easier to predict than consumption in the VAR model. The dividend–price ratio does not significantly predict future price growth. Consumption and dividend shocks have lasting impacts on income and prices.
Originality/value
The consumption–income ratio and the dividend–price ratio are still key to understanding future movements in income and stock prices. The consumption–income ratio significantly predicts future income in the USA, and aggregate income is easier to predict than consumption in the VAR model. However, the dividend–price ratio does not significantly predict future price growth, a change from previous research from the 1990s, despite the increasing complexity of stock markets. Consumption and dividend shocks have lasting impacts on income and prices and appear to be significant drivers in both the short- and long-run variance in income and prices.
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Ali Albada, Soo-Wah Low and Moau Yong Toh
This study aims to investigate the moderating role of investor demand on the relationship between the investors' divergence of beliefs and the first-day initial public offering…
Abstract
Purpose
This study aims to investigate the moderating role of investor demand on the relationship between the investors' divergence of beliefs and the first-day initial public offering (IPO) return.
Design/methodology/approach
The study sample covers the period from 2010 to 2019 and consists of 117 IPOs that are priced using the fixed price and listed on the Malaysian stock exchange (Bursa Malaysia). This study employed both the ordinary least square (OLS) and the quantile regression (QR) methods.
Findings
Investor demand, proxied by the over-subscription ratio (OSR), plays a moderating role in increasing the effect of investors' divergence of beliefs on initial return, and the moderation effects vary across the quantile of initial return. Pure moderation effects are observed at the bottom and top quantiles, suggesting that investor demand is necessary for divergence of beliefs to influence IPO initial return. However, at the middle quantile of initial return, investor demand is a quasi-moderator. That is, the OSR not only moderates the relationship between the divergence of beliefs and initial return but also has a positive effect on the initial return.
Practical implications
Investors' excessive demand for an IPO issue exacerbates the IPO under-pricing issue induced by a divergence of beliefs amongst investors, thus rendering greater equity market inefficiency.
Originality/value
To the authors' knowledge, this study is amongst the first to empirically investigate the moderating role of investor demand on the investors' divergence of beliefs and IPO initial return relationship.
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