Category Divergence,Straddling, and Currency: Open Innovation and the Legitimation of Illegitimate Categories

The organizational literature is increasingly interested in the origins and consequences of category emergence. We examine the effects of being affiliated with categories initially considered illegitimate (‘divergence’), and of organizational attempts to blur the boundaries between categories (‘straddling’), on capital market reactions to firm announcements. We develop arguments for how these effects likely vary with increasing legitimation (‘currency’) of the category. We apply event study methodology to the complete population of firms' announcements of open source activities, an open innovation model for software development that is novel and defies the extant dominant logic of software production and valorization. Over a ten‐year period, we find negative effects of divergence, positive effects of straddling, and that the magnitude of both these effects diminishes with increasing category currency. The implications for theories of organization and open innovation in the context of category emergence are discussed.     

上市公司财务重述公告的市场反应研究

本文利用事件研究法对发布财务重述公告的上市公司在公告日前后的市场反应进行了检验，并对比分析了不同类型重述公告引发的市场反应的差异。研究发现，上市公司的财务重述具有显著的负面市场反应，且不同类型重述公告的市场反应各异。由收入确认问题引发的财务重述，其负面市场反应大于由其他问题导致的财务重述的市场反应；当重述公告涉及范围广、重述发起人为外部监管机构、重述涉及核心会计指标以及重述导致盈余调减时，其负面市场反应更为显著。     

Information asymmetry,capital adequacy,and market reaction to loan loss provision announcements in the banking industry

This study finds significantly negative abnormal returns accompanying press announcements of loan loss provisioning in the banking industry. The negative reactions are shown to arise from both an informational asymmetry regarding asset value and the costs associated with capital adequacy regulation. It is further shown that the market reaction depends upon the type of asset being provisioned. Announcements regarding the provisioning of foreign debt are accompanied by positive market reactions, while announcements of the provisioning of real estate loans and other types of debt are accompanied by negative market reactions.     

Market reaction to large bank merger announcements in oligopolies

This paper evaluates the individual and rival stock price reactions to large bank merger announcements and subsequent regulatory rejection in an oligopoly. The results show that the announcements produce significant positive abnormal returns for the merger candidates. Regulatory obstacles and denial of the proposed mergers produce significant negative returns. Analysis of the rivals’ reactions doesn’t produce consistent significant results. This suggests that the market reactions for the merging banks results are driven by expected increases in efficiencies. The rivals’ reaction is explained by the fact that the market would remain contestable after the mergers since the offered products are homogeneous.(JEL G14, G34)     

Labor market reputation and the value of the firm

This study examines the stock market reaction to announcements that should contribute to the positive reputation of firms' human resource management practices. Announcements consist of the annual release of the list of 'best' employers by Working Mother magazine. We hypothesize that these announcements positively contribute to the firms' labor market reputation, thereby improving a firm's ability to attract, retain and motivate good employees. We find a small but statistically significant increase in firms' stock prices following the release of the list. The effect is larger, the first time a firm appears on the list relative to subsequent appearances.     

The informational content of credit rating announcements for share prices in a small market

The informational value of credit ratings is a subject of continuing debate. This research examines whether reaction to small market credit rating announcements is different from large markets, due to limited information, liquidity premia, and analyst neglect factors. Unlike U.S. and Australian studies that find a significant reaction to only bad news, a significant positive reaction to both positive placements and upgrades is found in the New Zealand market. Further, significant market reaction largely accrues to firms not cross-listed in U.S. markets. This evidence suggests credit rating agencies act as substitute information providers for firms followed by relatively few analysts. A substantial portion of this research was completed while author Meyer was affiliated with Massey University, Albany Campus, Auckland, New Zealand.     

Environmental policies and financial performance: stock market reaction to firms for their proactive environmental practices recognized by governmental programs

Firms implement proactive environmental practices (PEPs), and governments in developing countries such as China implement environmental policies such as pilot and demonstration programs to promote these PEPs. However, it remains unclear whether and when firms recognized by such governmental programs improve financial performance. Using a sample of 233 firms recognized by a national Chinese government environmental program, event study is employed to estimate stock market reaction of recognized firms. The Heckman two-stage procedure is followed to examine the moderating effects. We find that the average stock market reaction is not significant. Cross-sectional analyses indicate that firms with earlier recognitions, recognized for demonstration projects (compared with pilot ones), and operating in more-polluting industries have greater market reactions, while types of PEPs (internal versus external), export intensity and government ownership (state-owned or not) do not moderate the market reaction. This paper provides implications for firms about whether and when they should participate in a government environmental program.     

Market impact of international sporting and cultural events

We study market reaction to the announcements of the selected country hosting the Summer and Winter Olympic Games, the World Football Cup, the European Football Cup and World and Specialized Exhibitions. We generalize previous results analyzing a large number and different types of mega-events, evaluate the effects for winning and losing countries, investigate the determinants of the observed market reaction and control for the ex ante probability of a country being a successful bidder. Average abnormal returns measured at the announcement date and around the event are not significantly different from zero. Further, we find no evidence supporting that industries, that a priori were more likely to extract direct benefits from the event, observe positive significant effects. Yet, when we control for anticipation, the stock price reactions around the announcements are significant.     

Cross-sectional variation in the stock market reaction to bond rating changes

Previous research has found that the stock market reacts negatively to bond rating downgrades and that downgrades tend to follow periods of negative returns, indicating that at least some downgrades are partially predictable. Hypothesizing that the reaction to a downgrade depends on both the implications for cash flows and the degree of surprise, we explore how the reaction to downgrade announcements varies across bond issues. We find that the equity market reacts much more negatively to bond rating downgrades to and within the speculative bond category than to downgrades within the investment grade category. Within the speculative category, the reaction is stronger, the lower the old and new ratings are. The reaction to multiple-level downgrades is not very different from that to single-level downgrades. The market reaction is also stronger if the firm has experienced negative pre-downgrade abnormal returns. Our evidence indicates that downgrades are viewed by the market as providing information on likely future earnings before interest charges, not just likely future interest charges. It is also consistent with Billett's (1996) hypothesis that low rated debt makes a firm less attractive as a takeover target.     

Information effects of announced stock index additions: evidence from S&P 400

The study examines the information content of press announcements of S&P 400 additions between 2002 and 2007. Prior research into stock index additions has explained the positive valuation effects of additions to S&P indices mostly in terms of the price pressure hypothesis and downward sloping curve hypothesis. The two hypotheses attribute the positive market reaction purely to index-fund buying rather than information effects of announcements. My empirical investigation further reinforces the credibility of the information hypothesis by showing that the market varies its response to added firms depending on the information released about them at the announcement. The analysis demonstrates that the mode of addition, exchange listing, reason for index change, and firm size can modulate valuation effects of stock index additions. The paper also strengthens the argument that announcements of additions to an S&P index contain new signals about the industries represented by the added firms. Positive and significant wealth effects are exclusively attributable to ??non-member?? rival firms. Overall, the results imply that the market discerns and rewards firms that come from outside the S&P universe (pure additions) and rival firms that are not part of a target index.     

Market Reaction to Goodwill Impairments

This paper examines the information content of goodwill write-downs under International Accounting Standard (IAS) 36 (Impairment of Assets) and Statement of Financial Accounting Standards (SFAS) No. 142. We investigate whether the informational value depends on the reliability of the news. Using a sample of 564 goodwill write-down announcements issued from 2005 to 2009, we find a negative capital market reaction to announcements of unexpected goodwill write-offs. Our results indicate that investors react more negatively when a country's level of legal protection is low and allows more management discretion. We further report that market reaction is associated with managers explaining the write-down decision and depends on the verifiability of these explanations. Investors react more negatively when an unverifiable internal explanation is given and less negatively when a verifiable external explanation is provided. We do not find significant differences between write-down announcements under SFAS 142 and IAS 36.     

Capital market reactions to earnings announcements: empirical evidence on the difference in the information content of IAS-based earnings and EC-Directives-based earnings

Listing on a foreign stock exchange and the aim to attract international investors usually forces European quoted companies to adapt information supplied in financial statements to different information needs of international investors. Because of the dominance of the American stock market, this adaptation raises especially the question whether Anglo-American-oriented accounting standards (for instance IAS — International Accounting Standards) convey a higher information content for investors than continental-Europe-oriented accounting standards (for instance EC-Directives). The study examines the information content of earnings announcements, i.e. abnormal returns resulting from un-expected earnings, for a sample of Swiss quoted companies which have changed the accounting standard used for presenting Swiss GAAP consolidated financial statements to either EC-Directives or IAS and can therefore contribute to this discussion. The results of the study suggest that IAS-based earnings announce-ments convey a statistically significant higher information content than earnings announcements based on the Swiss GAAP if a variance-approach is used. For investors in the Swiss capital market, the switch from Swiss GAAP to IAS has therefore increased the information content of financial statements. But comparing IAS-based and EC-Directives-based earnings announcements, the results suggest that for investors IAS-based earnings do not possess a statistically significant higher information content than EC-Directives-based earnings. This result has been achieved despite the fact that for Swiss financial analysts financial statements based on IAS convey a significant higher information content than financial statements based on EC-Directives. Avoiding problems in specifying a model for unexpected earnings by standardizing the mean of the abnormal returns of each event window to a positive value does not lead to a different conclusion if the variance approach is used.     

Supply chain integration and shareholder value: Evidence from consortium based industry exchanges

Recent trade and academic literature point to the importance of supply chain integration among partners as a key determinant of value creation. This paper analyzes the shareholder value effects of setting up industry exchanges, a prominent mechanism used to achieve supply chain integration. Shareholder value effects are estimated by measuring the stock market reaction (abnormal returns) associated with announcements to form or join industry exchanges. We find that abnormal returns from participation in industry exchanges are positive but only marginally significant in the whole sample of 144 firms in 18 exchanges formed during 2000–2001. In the sub-sample of 88 exchange founders who were part of the original announcements to form the exchange, the abnormal market reaction is about 1% and significant. We also find that firms with greater bargaining power and higher process efficiency benefit more from participation in industry exchanges.     

Bond review and rating change announcements: An examination of informational value and market efficiency

This paper examines the impact of announcements of both bond rating reviews and rating changes on equity returns. We find that announcements of review for possible down grading of debt have a significant negative effect on stock prices while subsequent actual downgrades have a negligible impact. Further, we find that press releases convey new information to the market whereas the subsequent reporting of this information in the financial press causes little market reaction. We conclude that extreme care regarding details of the dissemination of financial information must be exercised in any event study.     

Partners of USEPA Climate Leaders: an Event Study on Stock Performance

This research utilized an event study method to assess how the stocks of publicly traded companies responded before and after announcing their partnership with the United States Environmental Protection Agency (USEPA) Climate Leaders program. Although the stocks exhibited an average non‐significant positive abnormal return of 0.56% on the day of the announcement, the cumulative abnormal returns for the stock prices of the firms for two of the three event windows showed statistically significant negative returns. These results suggest that these firms' public announcements of joining the USEPA Climate Leaders partnership did not have a positive impact on stock performance. While no immediate financial benefit was found in this research, the practices implemented by these firms to reduce their greenhouse gas emissions may still bode well for long‐term corporate earnings and attractiveness to investors. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

Relationship between environmental performance and financial performance: an empirical analysis of japanese corporations

The hypotheses that a firm's environmental performance has a positive impact on its financial performance and vice versa are statistically supported by Japanese data. However, this tendency for two‐way positive interaction appears to be only a relatively recent phenomenon. The tendency for realizing the two‐way interaction is not limited to the top‐scoring firms in terms of both financial and environmental performance. On the contrary, this is also a trend that can be observed fairly generally. Obviously, when we consider only scores of those companies that published the relevant information in their environmental reports, and conduct the statistical causality test with such information as additional input to the pooled time‐series and cross‐section data of financial performance, the results become more strongly significant. From the recent experience of environmental policies in Japan, we infer that information‐based environmental policy measures are effective to encourage the ongoing transition toward a more sustainable market economy. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.     

What does targeting ecological sustainability mean for company financial performance?

This study empirically examines the effects of companies' environmental orientation on their long‐run financial performance. It also examines the mediating roles of environmental legitimacy and environmental performance. We use PLS‐SEM among a sample of large U.S.‐based companies. The results show that an environmental orientation that targets ecological sustainability is directly and positively associated with the debt ratio and with long‐run market value but to a lesser degree than what is obtained by not targeting ecological sustainability. Targeting ecological sustainability has a greater positive impact on environmental legitimacy than not targeting ecological sustainability. Environmental legitimacy, but not environmental performance, mediates the link between environmental orientation and long‐run profitability and market value. These findings suggest that targeting ecological sustainability is important for improving environmental legitimacy, but companies are not proactive in improving environmental performance. This study offers insights to managers for improving financial performance by targeting ecological sustainability.     

The Value Relevance of Environmental Audits: Evidence from Japan

Environmental audits are implemented internally in order to monitor compliance with environmental laws, regulations and related accounting rules, and to develop recommendations for ways in which to improve environmental accounting processes and performance. In addition, external third‐party assurance on environmental information is used to verify whether firms’ disclosures on environmental information are in compliance with environmental accounting rules and regulations. We examine whether firms’ environmental audits positively affect their market values and whether third‐party assurance strengthens positive effects, using value relevance theory as a theoretical foundation. Our main tests are based on 266 Japanese manufacturing firms’ published environmental reports for the period 2010–2013. We find that the average market value of firms that implement environmental audits is 9 percent greater than those that do not. Further, we find that environmental audits positively affect firm value, largely through interaction with third‐party assurance. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

The changing relationship between job loss announcements and stock prices: 1970–1999

We study the reaction of stock prices to announcements of reductions in force (RIFs) using a sample of 4273 such announcements in 1160 large firms during the 1970–99 period collected from the Wall Street Journal. We note that the total number of actual announcements for the firms in our sample follows the business cycle quite closely. We then examine changes over time in standard summary statistics (means, medians, fraction positive) of the distribution of stock market reactions, measured by the cumulative excess returns (CER) of firms' stock prices over a 3-day event window centered on the announcement date, as well as changes over time in kernel density estimates of this distribution. We find clear evidence that the distribution of stock market reactions shifted to the right (became less negative) over time. One possible explanation for this change is that, over the last three decades, RIFs designed to improve efficiency have become more common relative to RIFs designed to cope with reductions in product demand. We estimate multivariate regression models of the CER controlling for the stated reason for the announced layoff, industry, and other characteristics of the announced layoff. We find that almost none of the decline in the negative average stock price reaction between the 1970s and 1990s can be explained by these factors.     

Spillover effects within supply chains: Evidence from Chinese-listed firms

There is increasing attention on information transfers along supply chain partners for firm (extreme) events. This growing literature finds spillover effects following certain types of firm events. Using data from credit rating actions of Chinese-listed firms over the period between March 2007 and May 2020, we examine the spillover effects of supply chains by focusing on the market reactions of event firms to the action announcements. We find strong evidence of spillover effects driven by the market reactions of event firms, which are enhanced through information diffusion channels as supply chain partners receive more investor attention. Moreover, the effects are stronger when event firms' market reactions are negative, event firms are non-stated-owned, the industry concentration of event firms is higher, or the supplier-customer business relationship is closer. Overall, these findings highlight the role of investor attention and network characteristics in supply chain spillovers.