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This study investigates the reasons for the disagreement among takeover studies on whether the return to bidders (short-term and long-term) is zero or negative. It…
This study investigates the reasons for the disagreement among takeover studies on whether the return to bidders (short-term and long-term) is zero or negative. It documents that the two-day announcement-period bidder returns are inversely related to the size and age of targets, but positively related to the age of bidders. Conversely, five-year buy-hold returns (adjusted for size, market-to-book equity, and price momentum) if measured from the date of announcement are positively related to the size of targets, and if measured from the date of resolution are negatively related to the age of bidders. These and other findings are taken to suggest that if takeover studies impose different restrictions on the size and/or age of firms in the sample (and the study documents that they do), they could end up with contradictory findings about bidder returns.
We examine whether systematic risk of the financial services industry (banks, finance, insurance, and real-estate sectors) declined after the passage of GLBA. This study…
We examine whether systematic risk of the financial services industry (banks, finance, insurance, and real-estate sectors) declined after the passage of GLBA. This study differs from prior work in that we examine changes over a long period of time (5 years before and 5 years after the Act) and we use the Carhart (1997) four-factor model for assessing changes in risks. The study finds that banks, insurance, finance, and real-estate segments load on the market, size, and value factors before as well as after GLBA (the real-estate segment loads on the value factor only after GLBA). Except for finance companies, betas decline significantly for all the other segments after the GLBA. In the case of banks even their loadings on the size and value factors decline after the GLBA, while in the case of finance and real-estate companies the loadings on the momentum factor exhibits reduction in risk after the Act. Overall, the GLBA had a risk reducing impact on the financial services industry.
Purpose – This study examines both the short- and long-term share price reaction to announcements of financial restatements cited in the U.S. General Accounting Office…
Purpose – This study examines both the short- and long-term share price reaction to announcements of financial restatements cited in the U.S. General Accounting Office (2006) database.
Methodology – It uses the augmented four-factor Fama-French model for assessing share price reaction.
Findings – The study finds that the average cumulative abnormal return (CAR) for a sample of 553 restatements (by 437 companies) is significantly negative (−1.58) for the three-day window surrounding the day of announcement. The average CAR for the one-year period prior to the announcement (−9.6%) and for each of the four years after the announcement is negative as well, with the average CAR for the four years adding up to −22%. The study also documents differences in CARs based on the entity prompting the restatement (company, auditor, and Securities and Exchange Commission), the reason behind the restatement (revenue, cost, reclassification of item, etc.), and for one-time versus repeat offenders.
Social implications – Taken together, the findings indicate that financial restatements impose significant short-term as well as long-term costs on shareholders.
Originality/Value – The evidence about long-term share price reaction to financial restatements is missing in prior research. The relationship between long-term and short-term share price reaction to financial restatements fails to suggest systematic over/underreaction by the market.
This study examines share price reaction to the enrollment by companies in the Children’s Food and Beverage Advertising Initiative. We find that, on average, in the month…
This study examines share price reaction to the enrollment by companies in the Children’s Food and Beverage Advertising Initiative. We find that, on average, in the month of enrollment, shareholders of companies that join the CFBAI experience abnormal return of −3% and so do the shareholders of the immediate competitors that do not join the initiative. However, over the subsequent five years, while the shareholders of companies enrolled in the initiative experience an average abnormal return of +16.6%, that of non-enrolled competitors experience a further abnormal return of −34%. The abnormal returns for the two groups (at the time of enrollment and over the subsequent five years) are uncorrelated and so benefitting at the expense of competitors does not appear to be the motive for enrolling in the CFBAI. The study also provides comparison of number of employees and other important financial ratios before and after enrollment in the CFBAI for the two groups.