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Misconduct allegations have been found to not only affect the alleged firm but also other, unalleged firms in form of reputational and financial spillover effects. It has remained unexplored, however, how the number of prior allegations against other firms matters for an individual firm currently facing an allegation. Building on behavioral decision theory, we argue that the relationship between allegation prevalence among other firms and investor reaction to a focal allegation is inverted U-shaped. The inverted U-shaped effect is theorized to emerge from the combination of two effects: In the absence of prior allegations against other firms, investors fail to anticipate the focal allegation, and hence react particularly negatively (“anticipation effect”). In the case of many prior allegations against other firms, investors also react particularly negatively because investors perceive the focal allegation as more warranted (“evaluation effect”). The multi-industry, empirical analysis of 8,802 misconduct allegations against US firms between 2007 and 2017 provides support for our predicted, inverted U-shaped effect. Our study complements recent misconduct research on spillover effects by highlighting that not only a current allegation against an individual firm can “contaminate” other, unalleged firms but that also prior allegations against other firms can “contaminate” investor reaction to a focal allegation against an individual firm.

In this study we investigated the effects of news reports on acquirer short-term performance. Our focus was on the extent to which key deal characteristics – the type of deal, during a merger wave or not or the presence of a significant premium – are made explicit. Moreover, we looked for the effect of the assessment of the deal characteristics by different key informants: board members, top management team members, and analysts. Configurations derived using the set-theoretic approach suggest that media-transmitted signals form complex interrelations among content and informant. We found that investors react positively to deals that are surrounded by unequivocal signals of synergy potential: they contain explicitly stated deal characteristics as well as deal endorsements from the boards and/or top management of acquirer and target companies. Analysts’ assessments of the deals seem to bear little influence on investor reaction. Meanwhile, investors react negatively to deals with low or absent media coverage as well as deals surrounded by signals of ambiguous synergy potential.

Purpose – We develop a theoretical model to analyze the role that financial conglomerates may play in reducing agency costs in target firms.

Methodology/Approach – We develop a model to analyze the activism of a financial conglomerate (that includes investment banking besides mutual fund management activities) in monitoring the managers of a listed firm. The specific problem we study is this: should the managers of a listed company undertake a new project within the firm or should they develop it outside of the firm with the help of a bank? Should or not the financial conglomerate help the managers undertake the project outside of the existing firm at the expenses of the investors of the mutual fund that it manages, but collecting fees from the investment banking activities?

Findings – It will be attractive to both the financial conglomerate and the managers to develop the project outside of the firm if the fees charged by the financial conglomerate for the provision of investment banking services are within a certain range. However, a more intense reaction to performance from the fund investors will translate to a greater space of converging interests between the conglomerate shareholders and mutual fund investors. Additionally, if fees earned by the mutual fund company are a large source of income for the conglomerate, then the lower will be its tendency to assist the managers.

Social implications – From a regulatory standpoint, the implementation of measures aimed at transferring capital between funds without cost would allow mutual fund investors to intensify their reaction to fund performance, therefore increasing the likelihood of lower agency costs. We also conclude that supervisory authorities should pay special attention to the banking relationships of firms and banks to whom the asset management component is secondary and with smaller direct stakes in the said firm.

Originality/Value of paper – We develop a theoretical framework to explain the absence of activism of institutional investors integrated in financial conglomerates in the governance of listed firms.

This study investigates how disclosure of the board of directors’ leadership and role in risk oversight (BODs oversight disclosure) influences investors’ judgments when information on risk exposures is disclosed. The theoretical lens through which we examine this issue involves negativity bias. Sixty-two stock market investors who engage in the evaluation and/or investment of stocks on a regular or professional basis participated in our study. Our results reveal that the addition of BODs oversight disclosure (positive information) does not carry significant weight on investor judgments (i.e., attractiveness and investment) when financial statement disclosures indicate a high level of operational and financial risk exposures (negative information). In contrast, under the condition of a low level of risk exposures, BODs oversight disclosure causes investors to assess higher risk in terms of worry, catastrophic potentials and unfamiliarity about risk information and, in turn, make less favorable investor judgments. Our findings add to the literature on negativity bias and contribute to the debate on the usefulness of disclosures about risk.

In this chapter, the authors investigate the impact of the disclosure of corporate social responsibility (CSR) information (in the form of ethical certification announcements) on firm value, measured as stock market reactions. When determining the potential value of CSR practices, investors evaluate disclosed information against firm-level characteristics. To cope with uncertainties related to voluntary disclosure and information asymmetries, investors also rely on heuristic evaluations of the congruity between firm- and institutional-level characteristics. The authors find that ethical certification information is especially valuable in opaque contexts with fewer firm reporting standards and poor protection mechanisms for investors. Overall, our findings suggest that in contexts where information asymmetries between insiders and outsiders are higher, validation of CSR activities by independent third-party institutions is more effective as a value creation mechanism.

An obvious way to improve acquisition performance is to avoid completing value-destroying acquisitions. However, once announced, manager motivations often focus on completing acquisitions. The authors develop how external governance actors can interpret acquisition characteristics and make counter-signals that acquiring firm managers could use to improve acquisition outcomes. The authors specifically develop how managers may react to counter-signals by shareholders, media, analysts, and short sellers. While there is limited research considering these external governance actors, evidence suggests that managers’ reactions to these actors may vary. A more integrated assessment of external governance actors’ influence on acquisition completion offers an opportunity to better understand acquisition processes and performance.

Management has considerable discretion over how to present and announce earnings components that are either unusual or infrequent, but not both (hereafter referred to as special items). In this study, we study the independent and joint effects of the accounting presentation format of, and the level of announcement prominence given to income-decreasing special items on investors’ judgments about the persistence of declining earnings.

Our study uses a 3 (format) × 2 (prominence) between-subjects design. In the experiment, participants act as proxies for nonprofessional investors to assess the persistence of a hypothetical firm’s declining earnings and make investment decisions.

Our results suggest that investors’ judgments are influenced by accounting presentation format and the level of announcement prominence. With respect to format, both classification and disaggregation affect investors’ assessment of earnings persistence. In addition, the degree of prominence given to an income-decreasing special item, albeit self-serving and not audited, introduces additional influence beyond that of accounting presentation format. In particular, we find that announcement prominence has a greater effect when the special item is aggregated with other operating expenses than when the special item is presented under the two other alternatives.

Our study contributes to the literature by demonstrating that presentation format and announcement prominence both have significant impact on investors’ judgments and decisions, and that their effects are interactive. Our results also indicate that future research can possibly gain better insight if it considers the accounting attributes of the special items in addition to their economic attributes.

Introduction: According to the effective market hypothesis, investors act rationally when making an investment decision. The hypothesis assumes that investors invest in a way that maximizes their returns, taking into account the new information received. If the information released on the market is interpreted in the same way by all investors, no investor would be able to earn above the market. This hypothesis is valid in case of efficient markets. In the event that investors show irrational behavior to the information released on the market, the markets move away from efficiency. Overreaction behavior is one of the non-rational behaviors of investors. Overreaction behavior involves investors overreacting by misinterpreting the new information released to the market. According to De Bondt and Thaler’s (1985), overreaction hypothesis in the event that investors overreact to the news coming to the market, after a period the false evaluation, the price of the security is corrected with the reversal movement, without the need of any positive or negative information. Aim: The purpose of this study is to examine investors’ overreaction behavior in mergers and acquisitions. For this purpose, overreaction behavior was analyzed for companies whose stocks are traded on the Borsa Istanbul, which were involved in mergers or acquisitions. Method: In the study, companies that made mergers and acquisitions for the period 2007–2017 were determined, and abnormal returns and cumulative abnormal returns were calculated by using monthly closing price data of these companies. Moreover, whether investors overreact to the merger and acquisition decision is examined separately for one-, three- and five-year periods. Findings: As a result of the research, it has been observed that there is a reverse return for one-, three-, and five-year periods. However, it has been determined that the overreaction hypothesis is valid for only one year.

Partner firms to the same joint venture experience sharply different stock price reactions. These differences cannot be explained by mechanical factors related to differences in firm size and ownership share in the project, nor are they attributable to different partner roles in the project or differences in investor anticipation of the announcement. We conclude that the stock price reactions reflect a revaluation of non-project assets that is different for each partner. Additionally, we find evidence indicating that investors infer information about agency problems (in the sense of Jensen, 1986) from the joint venture announcements and subsequently, revalue the whole firm – not just the marginal project being announced. Finally, we find that free cash flow is value-enhancing for one type of partner firm after we control for the extent of agency problems.

In Senegal, the government has encouraged private investment in agriculture and biofuel production since the 2000s, generating several attempted or effective large-scale land acquisitions by domestic and international investors. In reaction to these projects, local groups of opponents have joined forces with national peasant organizations, civil society associations, and think tanks to resist perceived land grabs. This article examines the emergence of this social movement and explains why anti-land grabs campaigns were successful in halting some projects, but not successful in others. I argue that four main factors are at play: a strong mobilization of local populations measured by group cohesion and level of determination; the assistance of national and international NGOs in scaling up protests beyond the local level; the capacity of opponents to harness the support of influential elites and decision-makers; and the legal status of the land under contention. This paper draws on an analysis of secondary data, qualitative interviews, and field observations carried out in Senegal for several months from 2013 to 2018.