News release and the role of different types of investors

We examine how investors react to positive and negative news in the Chinese stock market. We show that positive news is followed by a reversal in stock price, while negative news reports are accompanied by a drift. Using a unique account-level dataset, we find that institutional investors' attention bias contributes to the market's absorption process for different types of news, which is different from the conclusion that the phenomenon is driven by retail investors in the U.S. market. We explain the differences between the two markets as the short-sale constraints induce the attention bias of institutional investors in China. Individual investors are not able to correctly judge the content of news reports, and act as a liquidity provider. We highlight the market regulation plays an important role in the process of investors analyzing information.     

Stock market reactions to adverse ESG disclosure via media channels

This study examines the value relevance of corporate reputation risks (CRR) from adverse media coverage of environmental, social and governance (ESG) issues on stock performance at the firm level. Empirical results advance signalling theory and resource-based view by providing evidence that corporate reputation is considered a valuable intangible asset by investors and adverse ESG disclosure via media channels have a significant and negative impact on firm valuation. The research is extended using various factors and indicates that heightened CRR have a substantially negative corollary effect on stock price of smaller and less liquid firms that are typically not S&P500 constituents. Further analysis using industry classifications reveals that stock performance of companies in the ‘sin’ triumvirate (i.e., alcohol, tobacco, and gaming) is not significantly affected by negative ESG media coverage. Instead, firms in candy & soda, steel works, banking, and insurance industries are the most susceptible to investors' repercussion from undesirable media spotlight. These findings provide new insights and indicate that beyond the type and delivery method of ESG disclosures, firm characteristics, corporate reputation status and industry explain differences in investors' reaction to ‘bad’ news.     

The value relevance of timely information: The case of comparable store sales growth

Investors and analysts have called for more timely disclosure of corporate information. Responding to these demands, some retail firms issue comparable store sales (CSS) on a monthly or a quarterly basis in addition to an annual basis. This study examines whether a timely disclosure of CSS provides value-relevant information to market participants by examining investors' and financial analysts' responses at the time of CSS disclosures (short-horizon) and over the month or the quarter (long-horizon). We find that both monthly and quarterly CSS are associated with contemporaneous market returns and analyst forecast revisions. More importantly, we find that quarterly CSS news becomes less important to investors when firms provide more timely CSS information, indicating that monthly CSS reports may preempt the information content of quarterly CSS. Additional tests show that investors and analysts rely less on CSS if CSS news and earnings (sales) news are inconsistent.     

Top investment banks,confirmation Bias,and the market pricing of forecast revisions

We investigate the impact of top investment banks (hereafter top IBs) on the pricing of forecast revisions through the investors' attention channel by examining the distraction effect and confirmation bias theories. The distraction effect theory predicts that investors' attention shifts to consensus revisions that align with revisions from top IBs, resulting in inattention to other revisions. This theory implies that top IBs primarily benefit investors by directing them to high-quality revisions. In contrast, the confirmation bias theory predicts that top IBs magnify market reaction to forecast revisions and benefit investors by partially offsetting investors' initial underreaction to revisions. Our findings indicate the presence of confirmation bias. We further examine the potential effects of the information content of revisions, analyst agreement, news sentiment, and information uncertainty to test the robustness of our results. Our findings suggest that top IBs ultimately contribute to the price discovery process by attracting investors' attention and this effect does not channel through the quality of consensus revisions.     

Does Modern Information Technology Attenuate Managerial Information Hoarding? Evidence from the EDGAR Implementation

Exploiting the staggered implementation of the EDGAR system from 1993 to 1996 as exogenous shocks to information dissemination technologies, we document that faster dissemination of corporate disclosures through the internet increases firms' future stock price crash risk. These results are robust to alternative sample constructions, measures of crash risk, and fixed effects. Supplemental evidence suggests two channels: an increase in stock liquidity and an increase in investors' reliance on public disclosure, both of which exacerbate managers' incentives to withhold bad news. Overall, our findings suggest that modern information technology may have an unintended effect on managers' bad news hoarding behavior.     

Weather,institutional investors and earnings news

We examine how pre-announcement weather conditions near a firm's major institutional investors affect stock market reactions to firms' earnings announcements. We find that unpleasant weather experienced by institutional investors leads to more delayed market responses to subsequent earnings news. Moreover, unpleasant weather of institutional investors is associated with higher earnings announcement premia. The influence of institutional investors' weather is robust after controlling for New York City weather, extreme weather conditions, and firm local weather. Additional cross-sectional evidence suggests that the strength of this weather effect is related to institutional investors' trading behavior.     

The Impact of Corporate Governance Press News on Stock Market Returns

Stock market prices reflect information regarding firms’ business environments, operations and, in general, their fundamentals. Recently, various studies have analysed the link between news coverage and stock prices but no evidence exists on how channels and ways of communication of information affect investors’ behaviour. We analyses these aspects focussing on a large sample of corporate governance news published between 2003 and 2007 in ‘Il Sole 24 Ore’, Italy's major financial newspaper. We show that before news is made public investors are only able to assess the type of corporate governance event underlying it. After publication, investors are influenced by the content (positive or negative) and the tone of communication (strong or weak) of the news.     

From Implicit to Explicit: The Impact of Disclosure Requirements on Hidden Transaction Costs

This paper provides evidence that disclosing corporate bond investors' transaction costs (markups) affects the size of the markups. Until recently, markups were embedded in the reported transaction price and not explicitly disclosed. Without explicit disclosure, investors can estimate their markups using executed transaction prices. However, estimating markups imposes information processing costs on investors, potentially creating information asymmetry between unsophisticated investors and bond‐market professionals. We explore changes in markups after bond‐market professionals were required to explicitly disclose the markup on certain retail trade confirmations. We find that markups decline for trades that are subject to the disclosure requirement relative to those that are not. The findings are pronounced when constraints on investors' information processing capacity limit their ability to be informed about their markups without explicit disclosure.     

Liquidity,the Value of the Firm,and Corporate Finance

The theory of corporate finance has been based on the idea that a company's market value is determined mainly by just two variables: the company's expected after‐tax operating cash flows or earnings, and the risk associated with producing them. The authors argue that there is another important factor affecting a company's value: the liquidity of its own securities, debt as well as equity. The paper supports this argument by reviewing the large and growing body of evidence showing that differences—and changes—in liquidity can have major effects on the pricing of corporate stocks and bonds or, equivalently, on investors' required returns for holding them. The authors also suggest that the liquidity of a company's securities can be managed by corporate policies and actions. For those companies whose value is likely to be increased by having more liquid securities—which is by no means true of all companies (mature firms that don't need outside capital may well benefit from having more concentrated ownership and hence less liquidity)—management should consider actions such as reducing leverage and substituting dividends for stock repurchases as well as measures designed to increase the effectiveness of their disclosure and investor relations program and the size of their investor base.     

网络关注度对我国股票市场信息不对称程度的影响

以2013-2016年391支股票的360搜索指数中的投资者关注度和媒体关注度的指数作为网络关注度度量指标,同时基于股票市场交易数据采用多种信息不对称计算方法构建了信息不对称性度量指标,并进一步构造了信息不对称主成分综合指标。通过建立横截面回归模型,探究投资者和媒体关注度对我国股票市场的信息不对称程度的影响作用。实证分析及稳健性检验结果表明：投资者关注度的增加会减少知情交易及信息不透明程度,从而减少了股票市场的信息不对称程度,提高了股票市场的流动性;媒体关注度对不同的信息不对称性度量指标的影响存在着不一致性。本研究通过探索投资者关注度及媒体关注度在新兴市场中的应用,对于我国证券市场监管层制定政策以及对于普通投资者优化投资策略都具有重要的参考意义。     

Liquidity,the Value of the Firm,and Corporate Finance*

The theory of corporate finance has been based on the idea that a company's market value is determined mainly by just two variables: the company's expected aftertax operating cash flows or earnings, and the risk associated with producing them. The authors argue that there is another important factor affecting a company's value: the liquidity of its own securities, debt as well as equity. The paper supports this argument by reviewing the large and growing body of evidence showing that differences—and, perhaps even more important, sudden changes—in liquidity can have major effects on the pricing of corporate stocks and bonds or, equivalently, on investors' required returns for holding them. The authors also suggest that the liquidity of a company's securities can be managed by corporate policies and actions. For those companies whose value is likely to be increased by having more liquid securities—which is by no means true of all companies (for example, mature firms with little need for outside equity are likely to benefit from having more concentrated ownership and hence less liquidity)—management should consider actions such as reducing leverage and substituting dividends for stock repurchases as well as measures designed to increase the effectiveness of their disclosure and investor relations program and the size of their retail investor base.     

How does institutional investors' information acquisition inhibit share pledging? Evidence from China

This study investigates whether and how institutional investors' information acquisition affects controlling shareholder's share pledging. Taking a unique data of institutional investors' corporate site visits in China, we find that institutional investors' corporate site visits significantly inhibit controlling shareholder's share pledging. This effect is robust to a series of robustness checks, including controlling for endogeneity concerns, propensity score matching method, alternative model specifications, and alternative measures of the independent variable. We then provide evidence that the negative relation between institutional investors' corporate site visits and controlling shareholder's share pledging is more pronounced for listed firms with less efficient information environment and weaker corporate governance. Further analysis indicates that the negative relation is also more pronounced when controlling shareholders are under higher margin call pressure and when the visiting institutional investors consist of more fund companies. Overall, our study is the first to provide direct evidence of the governance mechanism of financial intermediaries on shareholders' pledging decisions.     

Investor strategies in the green bond market: The influence of liquidity risks,economic factors and clientele effects

The green bond market has dramatically expanded especially in Europe but severe liquidity issues may undermine its rapid development. If few studies have assessed the implied liquidity risks for investors in terms of liquidity premium, none of them have specifically analysed its behavior across bond maturities. To fill this gap, this paper studies the term structure of the liquidity premium of the green bond market.We find that the sizes of short-term and long-term premia are close to those estimated on the German government bond market. We show that those premia are affected by economic factors and by spillover effects between them, which contribute to the U-Shape of the liquidity premium. Finally, we detect a liquidity clientele effect on the ask side impacting the liquidity premium, which implies a maturity segmentation i.e., high-risk (resp. low-risk) investors buy short-term (resp. long-term) green bonds and hold them until maturity.Taken together, our results deliver valuable insights on investors' strategies in the green bond market. Quite importantly, green bond investors prefer to opt for buy and hold strategies because they are compensated for higher liquidity risks along the entire maturity spectrum.     

Another victory of retail investors: Social media's monitoring role on firms' earnings management

Stock forums are expected to complement individual investors' sophistication via collective wisdom, thus triggering extreme market reactions through uniform scattered opinions. This paper investigates whether stock forums improve corporate governance and decrease earnings management among firms. We found that increased posts, views and comments in a stock forum raise firms' potential costs for obfuscating corporate performance and constrain their upward earnings management. Stock forum discussion tends to increase the likelihood of and the penalties for earnings management detection. By decomposing the cost of earnings management into tangible and regulatory costs, we find that the stock forum governance effect is more pronounced in firms with higher managerial ownership and higher regulatory risk. Social media is a complement and intensifier of traditional mass media. Firms with broader media coverage are more sensitive to the stock forum governance effect. Our results are robust after considering the likelihood that executives will account for stock forum discussion in their reporting decisions.     

Sunshine-induced mood and SEO pricing: Evidence from detailed investor bids in SEO auctions

We examine sunshine-induced mood and its impacts on investors' bidding decisions in the primary market where seasoned equities are offered. Analyzing a unique database that records seasoned equity offerings (SEOs) investors' locations, identities, and bidding information, we examine the degree to which sunshine exerts an influence on investors' bidding behaviors (and subsequently SEO discounts) from two dimensions: sunshine intensity and duration. We find that investors exposed to stronger sunshine intensity or longer sunshine duration submit a higher bid price for SEOs, thus leading to lower offer discounts. We also find that mood misattribution and risk-taking act as channels to rationalize such a sunshine effect. Our moderating analyses indicate that the documented impact strengthens in the case of greater uncertainty, less-frequent bidders, retail investors, and lower levels of investment. These sunshine effects impact failed bids, SEO participation and SEOs' long-term performance. Our study provides original evidence that investors in the primary market can be influenced by a sunshine-induced mood, which, in turn, determines the cost of equity financing.     

Is Investor Attention for Sale? The Role of Advertising in Financial Markets

Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage; however, little is known about how investors and markets respond to attention‐grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers' attention, influence investors' attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms' information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets.     

Does Limited Attention Constrain Investors’ Acquisition of Firm‐specific Information?

According to the framework outlined in Peng and Xiong ( 2006 ), attention‐constrained investors tend to process more market‐ and sector‐level information. We empirically test this theory. We find that firms with higher media coverage have lower contemporaneous stock return synchronicity. Such an effect is robust to analyses within size deciles, inclusion of firm fixed effects, estimation using a matched sample, and a two‐stage least squares approach. The effect becomes less pronounced during the financial crisis period when both the quantity and quality of firm‐specific information decrease. Further, the attention from media coverage has a spillover effect on the firm's industry peers without media coverage. Finally, investors of firms with higher media coverage are more efficient in incorporating future firm performance into current stock prices. Collectively, our findings support the theory in Peng and Xiong ( 2006 ) that investors increase their acquisition of firm‐specific information when a firm captures their attention.     

Media coverage and investment efficiency

We examine the effect of media coverage on firm-level investment efficiency. We find that media coverage reduces under-investment but increases over-investment. The negative effect of media coverage on under-investment is more pronounced in firms affected by greater information asymmetry and poorer corporate governance. The positive effect of media coverage on over-investment is driven by media-induced CEO overconfidence. Additional results show that both investment- and non-investment-related news coverage decrease under-investment, while non-investment-related news coverage is more influential in increasing over-investment. In general, higher news optimism is associated with less under-investment but more over-investment. Moreover, media coverage affects investment efficiency through its information dissemination rather than information creation function. Collectively, our results suggest that firms’ media visibility promotes more over-investment than under-investment.     

Media heterogeneity and post‐earnings announcement drift: evidence from China

This paper examines how the Chinese stock market acts differently towards state‐controlled and market‐oriented media coverage. Using a setting of post‐earnings announcement drift, we find that information from state‐controlled media enters the stock price in a timelier manner, while the message from market‐oriented media needs more time to get a response from investors. The effect is also influenced by whether the type of news coverage is good or bad. Our findings suggest that the capital market underreacts when good news is reported by the market‐oriented media.     

Trading behaviour and market sentiment: Firm-level evidence from an emerging Islamic market

We provide firm-level evidence from an emerging Islamic market that individual investors' trading behaviour causes weekend sentiment. Using data for 285 companies listed on the Dhaka Stock Exchange (DSE) for the period from 2002 to 2019 and applying appropriate econometric techniques, the paper has found evidence of weekend effect both on return and volatility. The results confirm that individual investors' sentiment drives the weekend effect in DSE. ‘Information content theory’ and ‘information processing hypothesis’ work for investors so that the market return and volatility become significantly different on Sunday. The market sentiment effect is significant for smaller firms and low dividend yield firms where individual investors are prevalent, suggesting that trading behaviour of individual investors determines weekend sentiment. A positive feedback relationship exists between returns on Sunday and the previous Thursday for both institutions and individuals. Our results are robust in various alternative specifications.