Intraday stock price effects of ad hoc disclosures: the German case

This paper examines intraday stock price and trading volume effects caused by ad hoc disclosures in Germany. The evidence suggests that the stock prices react within 30 min after the ad hoc disclosures. The adjustment of the trading volume needs even more time. We find no evidence for abnormal high price nor trading volume reactions in the five transactions before ad hoc disclosures. The bigger the company, which announces an ad hoc disclosure, the less severe the abnormal price effect, following the announcement, is. The higher the trading volume at the last trading day before the announcement, the higher the price and trading volume effects, after the ad hoc disclosures, are.     

The market reaction to social responsibility disclosures: The case of the Sullivan principles signings

Few studies to date have tested for investor use of social responsibility information disclosures. This paper examines the stock trading volume and price return reaction to the 1977 disclosures that certain United States companies doing business in South Africa had agreed to the Sullivan Principles. Results indicate that non-signing firms experienced significantly higher unexpected trading volume than signing firms around the announcement date. As such, the findings represent further evidence of investor use of social responsibility information.     

Do security breaches matter? The shareholder puzzle

This article analyzes the effect of computer breaches on publicly traded equities from 2005 to 2017. An event study is performed and breaches analyzed conditioned on whether the breach announcement has been made in the mainstream media or through other channels. We find that in the period prior to the announcement date in the media, the mean abnormal return is negative, reflecting a likely leakage of information. In the period following the announcement date, the mean abnormal return is positive, often more than offsetting the previous declines. The findings have important implications for analysts, portfolio managers, institutional investors, and regulators.     

Open‐Market Stock Repurchases by Insurance Companies and Signaling

The signaling hypothesis of share repurchases implies that management uses repurchases to signal either that their firm's future operating performance will improve or that shares of their stock are simply underpriced by the market. This study examines which of the two interpretations can better explain open‐market share repurchase programs announced by insurance companies. We find no evidence that future‐operating performance of insurers improves following the repurchase announcement. In addition, changes in future operating performance cannot explain the announcement‐period abnormal return. Instead, the stock undervaluation prior to the repurchase announcement can significantly explain the announcement‐period abnormal return, particularly for life insurers. Overall, our results suggest that the positive market reaction to insurers’ open‐market share repurchase announcements is due to the stock undervaluation by the market, but not due to positive information content about future operating performance conveyed in the repurchase announcement.     

Corporate name changes: Price reactions and long-run performance

Stock price reactions and long-run performance after a corporate name change are investigated using a sample of Hong Kong listed companies spanning 1999 to 2008. Corporate name changes are classified into four types. Investors react positively around the announcement date to changes announced as being due to a merger or acquisition, a restructuring or a change in business type. Name changes to provide clarity or for reputational reasons generate no stock price reaction. No abnormal trading activity is detected around the announcement and in the post-event period. There is very weak evidence of a relationship between long-run abnormal stock returns, operating performance changes and corporate name changes. The results suggest that name changes have short-term stock price effects but no long-term relationship with stock price or operating performance.     

Line-of-Business Disclosures and Spin-Off Announcement Returns

We investigated disclosure decisions by identifying a circumstance, the spin-off of a segment, where the benefits of disclosure should outweigh the costs. We compared the valuation revisions associated with spin-off announcements of firms with previous line of business disclosures to valuation revisions of firms making spin-off announcements without these disclosures. We found significant stock price increases associated with the spin-off announcement regardless of prior segment disclosure history. We also found, however, that the stock price increases were temporary for firms without prior segment disclosures, while the valuation revisions for firms with previous line-of-business disclosure information persisted.Data Availability: The data employed in this study are available from the sources identified in the text.     

Market behaviour around bankruptcy announcements: evidence from the Australian Stock Exchange

The corporate distress literature to date has largely focused on the predictive power of accounting variables ( Altman, 2001 ). Following previous literature, this study examines the relevance of abnormal stock returns in discriminating between failed and non‐failed firms (e.g. Clark and Weinstein, 1983; Shumway, 2001). Our results confirm the findings of previous literature that investors in failed firms typically incur substantial negative stock returns leading up to failure announcements. However, in contrast to prior research we do not find evidence of an announcement effect (i.e. negative stock returns on the event day itself or the day preceding). We also document evidence that the bid‐ask spreads of failed firms widen substantially up to 7 months prior to failure, indicating the likelihood of significant information asymmetries across investors in failed firms.     

Short-Selling Prior to Earnings Announcements

This paper examines short‐sales transactions in the five days prior to earnings announcements of 913 Nasdaq‐listed firms. The tests provide evidence of informed trading in pre‐announcement short‐selling because they reveal that abnormal short‐selling is significantly linked to post‐announcement stock returns. Also, the tests indicate that short‐sellers typically are more active in stocks with low book‐to‐market valuations or low SUEs. The levels of pre‐announcement short‐selling, however, mostly appear to reflect firm‐specific information rather than these fundamental financial characteristics. We believe that these results should encourage financial market regulators to consider providing more extensive and timely disclosures of short‐selling to investors.     

Capital Adequacy, Bank Mergers, and the Medium of Payment

We examine how banks' capital requirements affect the way bank mergers are financed, as well as the stock-market reaction to the merger announcement. We find that the capital position of the acquirer is one of the two factors most strongly influencing the choice of financing method; the other is the relative size of the merging banks. The smaller the acquirer in relation to the target bank and the higher the acquirer's capital adequacy ratio, the more likely it is that the acquisition will be financed by a stock swap. The capital requirements also affect the market reaction, through their effect on the financing method choice. The value of the acquirer's equity decreases more at the time of the merger announcement if the method of payment is stock. Like prior studies, we find that the abnormal return on the target banks' stock is positive.     

Convertible debt issuance,capital structure change and financing-related information: Some new evidence

This paper provides evidence on the valuation effects of convertible debt issuance. Common stockholders earn significant negative abnormal returns at the initial announcement of a convertible debt offering, and also at the issuance date. In contrast, the average valuation effect on common stock at the announcement of non-convertible debt offerings is only marginally negative, and is zero at issuance. The significant negative average effect on common stock value appears not to be systematically related to either the degree of leverage change induced by the convertible debt issuance or the extent to which the proceeds from issuance are used for new investment or to refinance existing debt. If, as appears likely, the issuance of convertible debt on average increases financial leverage, these results are inconsistent with evidence from other recent studies documenting common stock price effects of the same sign as the change in leverage. The evidence suggests that convertible debt offerings convey unfavorable information about the issuing firms, but the specific nature of such information remains unidentified.     

The Information in Management's Expected Earnings Report Date: A Day Late, a Penny Short

Since 1995, managers of thousands of firms have voluntarily disclosed the expected date of their firm's next quarterly earnings announcement to Thomson Financial Services Inc. These disclosures are approximately 500% more accurate than the simple time–series expected report dates used in prior accounting research. These disclosures are also informative. On average, managers who miss their own expected date eventually report earnings that fall about one penny per share below consensus forecasts for each day of delay. Investors respond by sending the price of late–announcing stocks down at the missed expected report date and continue to send them down as the reporting delay lengthens, consistent with our "day late, penny short" result. Despite this, we find that the market response at the time earnings are announced still depends on whether the announcement is early, on time, or late relative to the firm's own expected report date.     

Short sales, price pressure, and the stock price response to convertible bond calls

The announcement of a convertible bond call is associated with an average contemporaneous abnormal stock price decline of 1.75% and an ensuing price recovery in the conversion period. A price fall and the subsequent recovery suggest price pressure as the explanation for the announcement effect. However, in general the option to convert is not exercised early and hence, the increase in the number of shares outstanding does not occur at the announcement date. Instead, this paper argues and provides evidence that hedging-induced short selling causes at least part of the short-run price pressure.     

Timing,earnings management and over-reaction around pure placings

This paper provides new evidence about firms conducting pure placings in the UK. It examines their abnormal performance (stock and operating), earnings management (accrual and real activities) and abnormal growth prospects for up to three years surrounding the event. It questions whether (i) timing, (ii) earnings management and/or (iii) over-reaction hypotheses can explain these performance, earnings quality and growth paths. The results document that pure placing firms have high earnings quality and abnormally high growth opportunities at the announcement. For this reason, the market is overenthusiastic. It expects more than what is eventually fulfilled, in line with the over-reaction hypothesis. Weak evidence that placing firms may exploit market timing is noted, whilst there is no supportive evidence of earnings management. These findings distinguish the earnings quality and growth opportunities of pure placing firms from that of firms conducting open offers, firm commitment offers and other seasoned equity offerings (SEO) that are not private placements, for which prior evidence reports mainly timing and/or earnings management prior to the event. This paper facilitates a better understanding of UK SEO.     

Informed Trading around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options Market

This paper provides empirical evidence on the level of trading activity in the stock options market prior to the announcement of a merger or an acquisition. Our analysis shows that there is a significant increase in the trading activity of call and put options for companies involved in a takeover prior to the rumor of an acquisition or merger. This result is robust to both the volume of option contracts traded and the open interest. The increased trading suggests that there is a significant level of informed trading in the options market prior to the announcement of a corporate event. In addition, abnormal trading activity in the options market appears to lead abnormal trading volume in the equity market. This finding supports the hypothesis that the options market plays an important role in price discovery.     

How important are semi-annual earnings announcements? An information event perspective

Using a method that avoids the need to specify earnings expectations, we demonstrate that the period surrounding the semi-annual announcement of Australian firms' earnings is, on average, an important source of information. Although there is substantial year-to-year variation, we observe no evidence of any significant time trend, and also conclude that a shift from Australian domestic generally accepted accounting principle to International Financial Reporting Standards did not impact the association between earnings announcement windows and stock returns. We also find no evidence that the informativeness of earnings announcements varies systematically with firm size, analyst following or economic news (i.e., positive vs. negative stock returns, profits vs. losses), although we do observe significant variation across industries. Our conclusion is further supported by contrasting the earnings release date with the days immediately prior to release, or high information days other than earnings announcement windows. Using a more precise event window relative to prior studies (i.e., 3 h vs. 3 days), we confirm that earnings announcements contain significant new information about fundamentals.     

Stock splits to profit insider trading: Lessons from an emerging market

Stock splits have long presented financial puzzles: Why are they undertaken? Why are they associated with abnormal returns? Abnormal returns, particularly those coming shortly before a split’s announcement date, should raise strong suspicions of insider trading, particularly in nations with weak regulatory structures. We examined the 718 split events in the emerging stock market of Vietnam from 2007 through 2011. We found evidence consistent with illegal insider trading, particularly in firms that were vulnerable to insider manipulation and, therefore, more likely to split their stocks. When vulnerable firms’ stocks did split, they provided significant excess short-term returns. Tellingly, the abnormal returns on those stocks prior to the split announcements were also extremely high, indeed higher than their abnormal post-announcement returns. Moreover, trading volume increased prior to the split announcement date. This suspicious pattern is what we would expect if insiders were trading on their knowledge. We propose that illegal insider trading in contexts where it is possible to escape serious penalty provides a previously undiscussed and cogent explanation for both stock splits and abnormal short-term returns.     

Currency devaluation and stock market response: An empirical analysis

We study local stock market reaction to currency devaluation by a country's central bank. Devaluations appear to be anticipated by the local stock markets, and there are significant negative abnormal returns even one year prior to the announcement of the devaluation. A negative trend in stock returns persists for up to one quarter following the first announcement, and then becomes positive thereafter, suggesting a reversal. We explore whether changes in macroeconomic variables prior to currency devaluations are related to abnormal stock returns. We find that stock returns are significantly lower if the devaluation is larger and if the country is a developing nation. Furthermore, stock markets decline more around devaluations if reserves are lower, if the real exchange rate has depreciated over the prior years, if the capital account has declined, if the current account deficit has gone up, or if the country credit rating has deteriorated.     

Heterogeneity in the information content of 8-K disclosures about private targets: Acquirer size and target significance

In this paper, we empirically analyze the disclosures required by the Securities Exchange Commission (SEC) for acquisitions of privately held target firms by public acquirers. We find that 8-K disclosures filed by public acquirers within a week after the announcement date of the takeover of a privately held target firm materially affect the pricing and the trading of the acquirers' shares around the event date, but only for large acquiring firms. This impact is economically significant even for targets classified as “insignificant” by the SEC, but again, only for large acquirers. Our results suggest that it may be optimal to further reduce the disclosure costs faced by smaller acquirers in acquisitions of private targets.     

The impact of replacement cost disclosure on security prices: New Evidence

A number of studies have tested for information content in the ASR 190 disclosure by comparing the conditional and unconditional distribution of abnormal security returns around the time of disclosure. Since no differences were observed, it was concluded that ASR 190 had no information content. The study reported below performs a similar test by estimating the regression function of the conditional distribution of abnormal returns. This test procedure controls for the information content in contemporaneous historical cost disclosure and uses a conditioning variable not considered in earlier tests. It finds statistically significant stock price effects. However, because most of the effects appear to precede the official announcement date by several months, it is unclear whether stock prices were responding to the leakage of the information content of ASR 190 prior to disclosure, to private production of information contained in ASR 190 or to a variable omitted from the study which happens to be correlated with replacement costs.     

The Chinese Stock Dividend Puzzle

In this paper, we examine the announcement effects of dividends with an emphasis on stock dividends in China's capital market. We find that dividend-paying stocks exhibit significantly positive abnormal returns while non-dividend-paying stocks show a negative announcement effect. Further, we document that the cumulative abnormal returns for pure stock dividends and combined dividends are the main drivers of this announcement effect. In contrast, pure cash dividend stocks experience no significant price run-up before announcement. The significant announcement effect of stock dividends is robust to controlling the earnings surprise effect. We offer some discussion of the possible explanations.