Does prior record matter in the wealth effect of open-market share repurchase announcements?

This study investigates whether prior experience of share repurchases matters in the market reactions to the subsequent repurchase announcements. Specifically, we study the prior record on actual buybacks and post-announcement stock performance. We find that upon the announcement of share repurchases, stock markets not only respond more positively to those made by firms that have better record on actual buyback following their previous repurchase plan announcements, but also experience a stronger reaction for announcing firms with better stock performance after prior repurchase announcements. These results hold even after controlling for other variables that are found important in influencing the market reactions to repurchase announcements.     

Contagion and competitive effects of plan confirmation of reorganization filings: Evidence from the Taiwan Stock Market

This paper aims to examine the intra-industry effects of confirmation of a reorganization plan. Using unique Taiwanese data on announcements of reorganization confirmation, I find evidence that such announcements elicit positive stock price reactions for the announcing firms and negative stock price reactions for other firms within the same industry. Specifically, negative competitive effects dominate positive contagion effects for industry rivals in the context of the announcement of a reorganization confirmation. Moreover, a hybrid neuro-fuzzy model is constructed, where five industry- and firm-level inputs are considered, to investigate which rivals enhance their position and which do not. Results show that my model is consistent and stable, and is good at classifying both contagion- and competitive-effect candidates.     

Unexpected Share Repurchase Announcements

Abstract

Open-market stock repurchase announcements are generally perceived by the stock market as a signal of firm undervaluation. Our study shows that repurchase announcements that were preceded by SEOs of other firms in the same industry within the prior six months (namely SEO-RPs) are more likely the result of lacking investment opportunities than signaling undervaluation, especially in concentrated industries. Specifically, we find investors response negatively to SEO-RP announcements while react positively to regular repurchase announcements. The higher the intensity of SEO activities in the industry, the more negative market reaction to SEO-RP announcements. We argue that the market doesn’t expect a repurchase announcement when other rival firms are raising more capital via SEOs. These SEO-RPs represent a negative surprise to the market and lead to a downward adjustment in value of the repurchasing firms in the announcement window. In the three-year post-announcement periods, the SEO-RP firms underperform regular repurchasing firms in both stock return and operating performance. Moreover, while regular repurchasing firms gradually increase their capital expenditures, SEO-RP firms significantly reduce their capital expenditures. These findings support our arguments that repurchase announcements that immediately follow SEOs of rival firms (SEO-RPs) more likely indicate the announcing firms entering a slower growth rate with fewer investment opportunities than signal the undervaluation problem. The underperformance in stock return and operation combined with a significant reduction in capital expenditures in the post-announcement periods are consistent with this logic and also explain why the market reacts negatively to SEO-RP announcements.     

Drivers of price reaction to rights issue announcements in the Kuwait Stock Exchange

This study examines the drivers behind stock price reactions to announcements of rights issues by firms listed on the Kuwaiti Stock Exchange for the period 2003–2013. We find higher cumulative abnormal returns for firms that undertake larger issues, with the issue size reflecting the availability of favourable investment opportunities and their potential positive impact on firms’ earnings. We also document a positive price reaction in firms that are affiliated with a family group. We interpret this as evidence that the proceeds of the rights offering would be employed effectively when the firm is controlled by a family firm. No evidence was found for the price pressure and pricing effects.     

Market revaluations of foreign listings' reconciliations to U.S. financial reporting

The Securities and Exchange Commission requires foreign firms wishing to list their securities on the U.S. exchanges to convert their financial statements to U.S.-based generally accepted accounting principles (GAAP) in a reconciliation filing known as Form 20-F. This paper extends prior research analyzing the importance of the SEC requirement by examining the value relevance to U.S. capital markets of Form 20-F reconciliation information under two additional hypotheses: investors' anticipation of the reconciliation, and investors' perception of foreign countries' enforcement and reliability in applying local accounting rules. It is argued that the information content of the Form 20-F reconciliation data is preempted (at least partially) on the date of foreign earnings announcements because of investor anticipation of these reconciliations. Therefore, only significant unanticipated reconciliations exhibit value relevance on the date of filing. In addition, investor perception of the reliability of the reconciliations and the degree of confidence in foreign authorities enforcing local GAAP also affect the value relevance of the reconciliation data. This study hypothesizes that reconciliations made by firms from countries with mature and developed capital markets should be more value relevant to U.S. investors. The results show that both unexpected foreign earnings and anticipated reconciliations to U.S. GAAP are significantly associated with unexpected market returns during the week of earnings announcements. The region of the foreign country is also significantly associated with market returns. However, unexpected reconciliations are not significantly associated with unexpected market returns during the week of Form 20-F filing.     

Information advantage,short sales,and stock returns: Evidence from short selling reform in China

We study short selling around earnings announcements and examine the potential sources of their information. Using unique daily aggregate short selling transactions in China, we find that short sellers significantly increase (decrease) their short positions before negative (positive) earnings surprise. In addition, abnormal high short selling is significantly associated with negative post-earnings announcement stock returns. The findings suggest that short sellers, on average, are informed and sophisticated traders and they can exploit profitable opportunities contained in earnings announcements. Finally, we find that stocks with poor governance or more insiders have higher (lower) abnormal short selling in negative (positive) earnings surprise, indicating private information leakage from firms with weak governance; which is consistent with the tipping argument. Our findings have important policy implications for capital market regulation in China.     

Equity Purchases by Insiders and the Filing of Antidumping Petitions

The paper presents the first analysis of insider trading in the context of public policy implementation. The Securities and Exchange Commission (SEC) proscribes trading by corporate insiders upon material information that is not yet in the public domain. Although the SEC interprets what constitutes material information, it has historically focused on earnings, mergers, and acquisitions. Using a panel of US firms from 1985–87, the authors disclose a significant relationship between the filing of an antidumping petition and insider buying in the two months preceding the filing month. This suggests that the SEC should expand its focus to include public policy.     

我国公司红利政策与股市波动

本文从实证的角度分析了中国上市公司的年度红利公告对股价及交易量的影响。我们发现 ,不论是首次分红还是一般的年度分红 ,现金股利所引起的股价异常收益显著小于股票股利和混合股利 (即现金和红股 )。此外 ,现金股利作为首次分红支付方式不受市场欢迎 ,其异常收益显著为负值。为了保证实证结果的纯净性 ,本文还进行了干扰排斥性检验 ,排除了除息除权日的溢出效应、大宗交易所引起的股价偏差及红利公告期间风险要素增加的影响。此研究回答了我国证券市场建立以来公司红利政策与市场价格及交易额的相关关系问题。     

Market segmentation and information values of earnings announcements: Some empirical evidence from an event study on the Chinese stock market

This paper investigates the trading activities of two distinct classes of shareholders, namely, the Chinese domestic investors and the foreign investors in the segmented Chinese A- and B-share markets, respectively. We conduct an event study on the annual earnings announcements based on two different accounting standards: International accounting standards (IAS) and PRC generally accepted accounting principles (PRC GAAP). The earnings announcements based on IAS and PRC GAAP are value relevant. The investors in the B-share market react to both the IAS and PRC GAAP earnings announcements, while the investors in the A-share market pay more attention to the PRC GAAP earnings reports. In the B-share market, positive abnormal returns are associated with positive earnings surprise and negative abnormal returns go with negative earnings surprise. We find preevent abnormal trading volumes without significant price changes for the A shares, which may be due to existing information in the A-share market prior to earnings announcements. The postevent abnormal trading volumes last for a longer period in the A-share market than in the B-share market.     

Do insiders have inside tracks: An examination of Wall Street Journal's Inside Track columns?

This study investigates how the stock market reacts to the publications of the Wall Street Journal's “Inside Track” columns in two distinct time periods, 1988 to 1993 and 2002 to 2004. It first examines the stock return behavior during the trading period, the filing period, and the publication day for firms appeared in the Inside Track columns in the period of 1988 to 1993 and then provides a validity test with a sample from 2002 to 2004. The evidence indicates that the market tends to under-react to the insider trading information and insiders tend to be information-motivated traders. The significant filing period returns along with significant publication period returns are consistent with the gradual price adjustment argument. The study also finds that market reactions to the publications are significantly related to insider trading when the trades involve the board chairman.     

资本市场开放与企业真实盈余管理——基于“陆港通”的经验证据

资本市场开放不仅是扩大国际融资、更好地利用国际金融市场的需要,而且对我国资本市场发育和上市公司行为具有多重外部治理效应。本文借助我国内地与香港资本市场互联互通机制这一准自然实验,研究资本市场开放对企业真实盈余管理的影响。研究发现:(1)总体上,“陆港通”机制的实施显著降低了标的公司真实盈余管理程度。(2)委托代理问题是企业进行盈余管理的重要原因,而“陆港通”机制开通后,能够缓解标的公司代理矛盾,进而约束管理层的真实盈余管理行为。(3)当资本市场信息环境改善、管理层面临较大股票抛售压力以及大股东监督力度较强时,“陆港通”抑制企业真实盈余管理行为的治理效果更强。本文结果表明,资本市场开放有助于提高我国上市公司财务信息披露质量及公司治理水平。     

资本市场开放与企业真实盈余管理——基于“陆港通”的经验证据

资本市场开放不仅是扩大国际融资、更好地利用国际金融市场的需要,而且对我国资本市场发育和上市公司行为具有多重外部治理效应。本文借助我国内地与香港资本市场互联互通机制这一准自然实验,研究资本市场开放对企业真实盈余管理的影响。研究发现:(1)总体上,“陆港通”机制的实施显著降低了标的公司真实盈余管理程度。(2)委托代理问题是企业进行盈余管理的重要原因,而“陆港通”机制开通后,能够缓解标的公司代理矛盾,进而约束管理层的真实盈余管理行为。(3)当资本市场信息环境改善、管理层面临较大股票抛售压力以及大股东监督力度较强时,“陆港通”抑制企业真实盈余管理行为的治理效果更强。本文结果表明,资本市场开放有助于提高我国上市公司财务信息披露质量及公司治理水平。     

Stock market reactions to environmental disclosures: new evidence from China

We study how the stock market in China responds to announcements by an environmental risk index and find that China’s stock market penalizes firms associated with unfavourable environmental news if the information is provided directly to investors in a manner that is easily understood. We also find that the negative impact on stock prices fades after multiple disclosures of the same information.     

CEO Optimism and the Credibility of Open-Market Stock Repurchase Announcements

Given their low-cost and low level of commitment, open-market stock repurchase announcements are often viewed by the market with a degree of skepticism, leading to a weak initial market reaction followed by positive stock price drifts. The authors argue that the repurchase announcements made by optimistic CEOs should be more credible than those made by nonoptimistic CEOs. Our results show that optimistic CEOs are more likely to actually buy back their shares after the announcements and the abnormal returns following repurchase announcements are larger for optimistic CEOs. This evidence suggests that CEO optimism is an important factor that the market seems to overlook while evaluating the credibility of open-market repurchase announcements. Our main contribution is to link one of the most important managerial traits, optimism, to the open-market repurchases.     

The New York Times and Wall Street Journal: Does Their Coverage of Earnings Announcements Cause “Stale” News to Become “New” News?

Recent research suggests that the stock market reacts to stale information if it is reported in the media because it is gives the impression of being “new” news. The objective of this study is to provide a unique test of this hypothesis using the time-series properties of quarterly earnings. It is well documented that seasonally differenced quarterly earnings for adjacent quarters are positively correlated. Therefore a component of current quarter earnings when reported is news that was known or predictable at the end of the prior quarter and thus is old news. We find for those firms that receive media coverage in the Wall Street Journal and The New York Times that the price reaction at the time of the announcement of current earnings to past quarter's seasonally differenced quarterly earnings is greater than those firms that do not receive media coverage. The result is consistent with stale earnings information being given the appearance of new information resulting in a further price reaction. This suggests that the stale information hypothesis and media coverage could be a partial explanation for post-earnings announcement drift.     

Chinese overseas M&A performance and the Go Global policy1

It is well known that government plays an important role in the business activities of Chinese firms. Less certain is the effect this influence has on the wealth of those firms’ shareholders. We contribute to the literature by analysing stock market reactions to announcements by Chinese firms of overseas mergers and acquisitions (OMAs). OMAs are of particular interest because there can exist a conflict between the interests of the public sector in acquiring overseas assets, and the interests of the private sector in maximizing shareholder wealth. Our main dataset consists of 213 observations of 157 OMA events that occurred between 1994 and 2009, using share market returns from the Shanghai, Shenzhen, Hong Kong and US markets. The aggregation of share price data across multiple markets, and the listing of firms in multiple exchanges, raise econometric issues for the standard event‐study methodology. To address these, we use a new, feasible generalized least squares (GLS) procedure developed by Gu and Reed (2012) . On the basis of an analysis using both aggregated and disaggregated samples, and of daily and cumulative abnormal returns, we find consistent evidence that (i) Chinese OMAs have not lowered the wealth of shareholders of Chinese acquiring firms, and (ii) shareholders of Chinese acquiring firms have not fared worse under under China's ‘Go Global’ policy of encouraging outward investment by Chinese firms.     

Analyst earnings forecast revisions and the persistence of antidumping relief

Panel corrected standard errors with instrumental variables and effects are invoked to assess the significance of earnings forecast revisions around critical dates in non-steel AD petitions filed in 1985–1987. These petitions were filed between two important US trade law revisions (1984 and 1988), and the period encompasses significant stock market advances and declines. Event studies have been invoked to assess the value of AD petitions. However, they do not estimate the temporal distribution of any abnormal returns. Because analysts make quarterly earnings forecast revisions over several horizons, we can assess the short and long run value of petitions. We find that AD petitions tend to depress earnings forecasts in the year of the petition. However, second year earnings forecasts tend to be revised upwards. There is no effect on five year (long term) earnings growth forecasts. Hence any benefits of protection do not persist. There is evidence that analysts anticipate the filing by revising forecasts in the three months in advance of the filing. We also find that AD petitions do not affect the accuracy of forecasts.     

An analysis of accounting measures on the performance of U.S. international corporations

Accounting measures (earnings and cash flow) have been shown to affect market performance (stock price) in U.S. firms operating domestically. In general, earnings have statistically significant explanatory power of stock price movement, albeit superior to cash flow. However, U.S.-based international corporations consolidate earnings from foreign operations. Consolidation can report significant gains (losses) from foreign transactions, as well as from the translation of foreign assets and liabilities, as currency exchange rates flucturate. Researchers are divided over the impact, if any, that such gains (losses) have on stock price. Indeed, gain (loss) is not realized until foreign currency is converted into the parent firm's functional currency. Foreign operations may accumulate assets and foreign currency even while U.S. exchange rates decline. Stock analysts may consider all currencyadjusted data to be unreliable and prefer simple data such as sales. Currency-adjusted accounting measures may or may not influence market performance.     

控股股东股权质押、控制权转移风险与广告投入

股权质押使控股股东面临控制权转移风险,其有动机进行市值管理。本文以2011-2019年中国A股上市公司为样本,考察股权质押情境下控股股东是否存在调整广告投入的行为。研究结果发现,控股股东进行股权质押后,公司广告投入水平显著提高,说明股权质押情境下控股股东会通过策略性地增加广告投入进行信息管理,而非通过削减广告投入进行向上盈余管理,证实广告具有短期股票回报效应;控制权转移风险较大时,控股股东股权质押对广告投入的正向影响更明显,说明股权质押情境下控股股东增加广告投入是出于缓解控制权转移风险的动机。进一步研究发现,在散户规模较大和产品直接与消费者接触的企业,广告更容易吸引投资者注意力,此时控股股东增加广告投入的动机更强,该行为短期内可以提振股价,但没有起到改善经营业绩的作用且加剧了股价波动。本文为资本市场和产品市场的联系提供了证据,且对相关部门加强上市公司广告费用监管具有一定的政策参考价值。     

Regulation and financial disclosure: The impact of plain English

In October 1998, the SEC implemented a rule requiring firms to use plain English in their prospectus filings. In addition to the rule, the SEC encouraged the use of plain English in all filings and communication with shareholders. Did the SEC rule significantly impact managers’ disclosure style? And, more interestingly, did the SEC’s recommendations lead managers to change their disclosure style in filings not under the plain English mandate? Our textual analysis of Form 424, IPO prospectus, and 10-K filings over 1994–2009 finds that the SEC’s implementation of the plain English rule substantively impacted managerial behavior. When we focus on 10-K filings, we find that after the 1998 rule, firms are more likely to improve the stylistic components of their filing before an equity issuance and firms with better corporate governance policies are more likely to comply with the rule.