Performance following ESOP formations by publicly-held corporations

The study assesses the stock performance of publicly-traded firms following ESOP formations. The results show that ESOPs contributing common stock elicit a more favorable market response than ESOPs contributing convertible preferred stock. This result is consistent with the argument that the convertible preferred contribution reduces the regularity of the repurchase of common shares in the market. Also, ESOPs intended to defend against takeovers elicited no market reaction while other ESOPs elicited a favorable market response. This result supports the hypothesis that ESOPs intended to prevent takeovers may eliminate external market discipline. The study also assesses the long-term performance of firms following ESOP formations to determine whether some hypothesized effects of ESOPs are realized. Results of the analysis suggest that firms experienced favorable long-term valuation effects following the creation of new ESOPs. However, the expansion of existing ESOPs was not as favorable. Differences in the effect can be attributed to the loss of external discipline when an expanded ESOP leads to an increase in proportional ownership. *** DIRECT SUPPORT *** A00HA012 00006     

Characteristics of firms that issue convertible debt versus convertible preferred stock

This study examines the characteristics of firms that issue convertible debt versus firms that issue convertible preferred stock. The findings are consistent with the agency, information asymmetry, optimal capital structure, financial distress, and tax benefits hypotheses. The findings also indicate that these two types of convertible securities are used to raise external capital by distinctively different groups of firms. First, convertible preferred stock issuing firms have larger nondebt tax shields and higher levels of financial, operating, and bankruptcy risks than convertible debt issuing firms. Second, firms that issue convertible debt have greater free cash flow (financial slack) and growth potential than firms that issue convertible preferred stock.     

Long-run underperformance following private equity placements: The role of growth opportunities

Our results show that the post-offering performance of private equity issuers is related to growth opportunities. We find significant long-run underperformance in stock returns following private placements only for firms with high Tobin's q. High-q firms experience not only poor stock price performance but also poor operating performance. Low-q firms, in contrast, do not display significant stock price or operating underperformance. We further examine three potential explanations for this relation: over-investment in assets by managers, investor skewness preference, and over-optimism about earnings prospects. Our results are consistent with the view that investors are overly optimistic about the prospects of high growth firms.     

An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

Multinationals' Offshore Operations,Tax Avoidance,and Firm‐Specific Information Flows: International Evidence

Using a large sample of multinational enterprises (MNEs) over the period 1999–2009, this study investigates whether and how offshore operations via offshore financial centers (OFCs) impact the extent to which firm‐specific information is incorporated into stock price, relative to common information. Our analyses show that, irrespective of whether a firm is a Type I offshore firm (directly having headquarters registered in OFCs) or a Type II offshore firm (indirectly setting up subsidiaries in OFCs), the amount of firm‐specific information flowing into stock price is lower for offshore firms than for non‐offshore firms. We also find that as offshore firms become more aggressive in their tax avoidance strategies, their stock prices impound a lower amount of firm‐specific information relative to common information. Finally, we find that a strong offshore proclivity also deters firm‐specific information flows, thereby driving up stock price synchronicity. Our results suggest that the opaque and complex nature of business and financial transactions in OFCs, coupled with their institutional characteristics, that is, weak and flexible legal enforcement, zero or extremely low taxation, and low litigation risk, provide offshore firms with not only stronger incentives but also the opportunities and means to adopt opaque disclosure policies and aggressive earnings management.     

Motives and consequences of IPOs in cold periods

We analyze the motives and long-term stock price performance of firms that pursue IPOs in cold IPO periods. We find that firms are more likely to engage in an IPO during a cold period when their earnings are relatively high and are expected to decline in the future. We also find that IPO firms during a cold period are more likely to have managed their earnings prior to the IPO. Furthermore, we find that cold IPO firms experience significantly weaker stock price performance than hot IPO firms, and results are robust to different criteria for defining hot and cold IPO periods, different measures of stock price performance, and different investment holding periods. We find that investment opportunities, the backing of a venture capitalist, and an increase in earnings in the year of the IPO lead to significantly higher long term stock price performance of IPO firms. Our multivariate models confirm the adverse cold IPO period effect on stock price performance even after controlling for the IPO motives and the firm's earnings performance. Our results also hold within the post-Sarbanes-Oxley (SOX) era.     

Stock returns following large 1-month declines and jumps: Evidence of overoptimism in the German market

We analyze the short-run and long-run performance of the largest 100 German firms that experience monthly stock price changes of more than ±20% between 1990 and 2003. The results indicate that the return patterns following large price increases are consistent with the overreaction hypothesis, but those following price declines indicate underreaction. Thus, our results support an overoptimism hypothesis for the German market. Further, for price decreases we find strong evidence of a size effect, while for price increases, market-to-book-ratios seem to play a role in determining the magnitude of the reaction. No evidence is found supporting the uncertain information hypothesis.     

An Investigation of Stock Price Declines Following Corporate Financing Events: Further Evidence

Prior research documents a large downward drift in stock prices following issuances of debt and equity by US firms. We conduct tests based on both stock price and trading volume to provide evidence on the reasons for this apparent market anomaly. We document evidence of earnings management through accruals prior to external financing and lower operating performance afterward that is associated with the amount of capital raised. The earnings management that precedes external financing and the amount of capital raised are associated with both the post-financing decline in stock price and trading volume around earnings announcements that follow for a period of three years. This evidence is consistent with the proposition that firms raise external capital prior to predictable declines in their operating performance and they release upward biased earnings before these events to manage investor expectations. The failure of many investors to incorporate this information into their trading decisions in a timely manner consistent with limited attention and over-confidence appears to drive stock mispricing. Our evidence does not support the conjecture that the financing anomaly is primarily a statistical artifact or that it is a manifestation of the accrual anomaly.     

Neighborhood effect on stock price comovement

We investigate how the geographic distance between firms’ headquarters affects their stock price comovement. Our results show that a firm's stock return has stronger comovement with the returns of nearby firms than with those of distant firms. Being in the same state and/or in the same industry strengthens the return comovement, but does not substitute for the negative effect of geographic distance on price comovement. Firms of similar share price and size also show stronger return comovement, but these factors do not mitigate the negative distance impact. Consistent with investor home bias and neighborhood effect literature, our results suggest that investors’ preference for local stocks and their interactions lead to correlated trading in local stocks and therefore stronger local price comovement.     

Trade credit financing and stock price crash risk

This study investigates the association between trade credit financing and stock price crash risk within China's context. We find that firms using more trade credit financing have significantly lower future stock price crash risk. This negative association is more pronounced for firms with greater information asymmetry and for firms located in less developed financial markets. This finding is robust to the endogeneity concern, alternative measures of stock price crash risk, and the inclusion of other factors identified in prior studies that might affect stock price crash risk. Further evidence suggests that both the monitoring mechanism and the disclosure mechanism drive the documented relation. Our study suggests that access to trade credit can significantly reduce the likelihood of crash risk in a country like China with less developed formal bank financing. Our study also suggests that investors can effectively avoid stock price crash risk by using the trade credit information disclosed in financial statements.     

On the differential market reaction to dividend initiations

The finance literature documents substantial positive stock price reaction to dividend initiations. Most dividend initiation studies focus on the average positive reaction; however, 40 percent of the firms that initiate dividends experience negative abnormal returns at announcement. This paper focuses on the apparent heterogeneity in the stock price reaction to dividend initiation. I find that the observed negative market reaction reflects the market’s economic assessment of the impact of the event on these firms, and that it is not caused by anticipation or confounding events. The result is also supported by the fact that the market reaction to dividend initiation for these firms is negatively related to initial dividend yield. Both the positive and negative observed reactions are consistent with conventional arguments regarding the information content of dividends, and their role in mitigating agency problems.     

Voting rights and shareholder wealth the issuance of limited voting common stock

This paper investigates the shareholder wealth consequences of the public announcements of the proposed issuance of multiple classes of common stock with disparate voting rights. The evidence suggests that, for our sample of 70 firms which proposed dual-class recapitalizations over the period 1962–86, the creafion of dual classes of common stock, on average, leads to abnormal stock price increases. The data do not lend support to the hypothesis that the concentration of voting power with incumbent management is detrimental to shareholder interests.     

Disclosure quality,price efficiency,and expected returns

Using a composite disclosure quality measure, we examine the effect of disclosure quality on price delay and the effect of price delay determined by disclosure quality on expected returns in the Taiwan stock market. We find that higher disclosure quality can reduce stock price delay through more investor attention and higher stock liquidity after we control for accounting quality variables and consider the endogeneity issue. Furthermore, we show that disclosure quality reduces expected stock returns through the price efficiency channel associated with both investor attention and stock liquidity. Our results indicate that increasing a firm’s standardized information rating by one standard deviation can reduce its expected stock return by 0.63% annually. Taken together, our evidence suggests that regulatory activities enforced to improve public firms’ disclosure quality in the Taiwan stock market can make the stock market more efficient and therefore lower investors’ required return for stocks.     

股价崩盘风险、信息环境与企业现金调整

以我国2009—2016年沪深上市公司数据为样本,探究了股价崩盘风险、信息环境对企业现金调整的影响。研究发现：股价崩盘风险越大,企业现金调整速度越快,且这种正相关关系对于分析师跟踪数量较少、机构投资者持股比例少的企业而言更为显著。进一步考察股权性质在企业现金调整速度中的影响,发现国有企业与民营企业面对股价崩盘风险的现金调整速度并不具有显著差异,但是对于民营企业而言,更多的分析师跟踪和机构投资者持股将显著降低企业应对股价崩盘风险的现金调整速度,信息环境对于国有企业的作用并不显著。     

Does CEO-chairman dialect similarity affect stock price informativeness for Chinese listed firms?

Does CEO-chairman dialect similarity (CCDS) affect stock price informativeness? Based on a sample of Chinese publicly listed firms for the period of 2012–2017, we find that CCDS significantly improves stock price informativeness. Our result implies that CCDS increases the loyalty of managers to their board, and deters them from extracting private benefits, which leads to more informative stock prices. Furthermore, our subsample analyses show that this relationship between CCDS and stock price informativeness is only found in firms that have more media coverage, higher institutional ownership and a non-busy board. Our results also suggest that mutual trust between the CEO and chairman is a possible channel through which CCDS improves stock price informativeness.     

Stock price effect of high-yield debt issues

This paper investigates the common stock price reaction at the announcement of the issuance of high-yield straight debt. The two-day announcement period abnormal returns are not different from zero for the 164 bond issues in the sample. No difference is found between announcement period abnormal returns of firms with bonds that default and firms with bonds that do not default. Results from statistical tests indicate that the announcement period abnormal returns are not explained by issuance year, bond-rate class, underwriter, issuance size, takeover activity or prior high-yield debt issuance experience. The findings are not consistent with the models by Miller and Rock (1985), Jensen (1986), Myers and Majluf (1984) and Krasker (1986). However, results indicate that existing stockholders are not harmed or helped by the issuance of the high-yield straight debt.     

Foreign investors and stock price efficiency: Thresholds,underlying channels and investor heterogeneity

This paper examines the relationship between foreign shareholding and stock price efficiency for Malaysian public listed firms over the 2002–2009 sample period. We use stock price delay as an inverse measure of price efficiency, and consider the speed of adjustment to local and global common factor information. The results show that foreign investors accelerate the incorporation of both types of common information into the prices of Malaysian stocks, mainly due to their superior skills in processing systematic market-wide factors. However, we find evidence of optimality in foreign shareholding, suggesting that the efficiency benefit disappears after foreign ownership exceeds a certain threshold level. Further analyses shed lights on the channels and moderating variables driving this non-monotonic relationship. Our disaggregate analysis on foreign investor heterogeneity shows that foreign investors who trade through nominee accounts are elite processors of public market-wide and firm-specific news in the Malaysian stock market.     

The long-term performance following dividend initiations and resumptions revisited

Previous studies have documented that an announcement of dividend initiation and resumption is associated with an increase in stock price, while Boehme and Sorescu (J Finance 47:871–900, 2002) argue that the dividend anomaly only occurs by chance. However, their sample contains firms listed within 3 and/or 5 years of their respective initial public offering (IPO) dates, as well as regulated firms. We conjecture that the confounding effects of IPOs and regulated firms may interfere with the increase in stock prices due to dividend initiations and resumptions and bias their results. We thus reexamine the long-term stock performance following dividend initiations and resumptions by excluding newly IPO firms and regulated firms. We find no evidence that the non-robust positive price drifts for firms, which initiate or resume cash dividends, is due to the confounding effects of IPOs and regulated firms. Therefore the price drifts after dividend initiation and resumption announcements may be a sample-specific result of chance, even after controlling for possible sample selection biases.     

中国上市公司送转行为动因研究——基于高送转样本的检验

关于中国上市公司大量进行股票送转的动机,学术界尚存争论。本文将不同送转理论纳入同一个计量模型,利用2006～2010年进行高送转公司的样本对不同送转理论进行了验证,为解决关于股票送转动机的争论提供了经验证据。实证结果支持了"最适价格假说"与"股本扩张假说",而拒绝"信号传递假说"、"价格幻觉假说"与"股利迎合假说"。此外,本文模型对高送转公司的预测准确度达90%,基于模型预测建立高送转公司的投资组合可以获取较稳定的超额收益。     

The reversal of large stock price declines: The case of large firms

This paper examines the long-run reversal pattern for a sample of large U.S. firms that experienced significant stock price declines of more than 20 percent during a specific month. The results from the analysis are largely consistent with the overreaction hypothesis and significantly greater in magnitude than those reported by previous studies. Six and 12 months after their initial price decline, the stocks of large firms earn approximately 4 and 12 percent in excess of what was expected, respectively. However, the magnitude and trend of that reversal differs substantially across industries. Technology stocks experience the largest and strongest reversal pattern followed by manufacturing stocks, while service industry stocks exhibit a clear downward drift that lasts up to three years and can be described as investorunderreaction to the large price drop.