The Information Content Of Calls Of Debt: Evidence From Long-Run Stock Returns

We examine the long‐run performance of the common stock of firms following calls of both straight and convertible debt from 1945 to 1995. Using a sample of 718 calls of straight debt, we find an average abnormal return in the five years following the call of between 0.16% and 0.34% per month, which compounds to an economically and statistically significant 11% to 22% over the five‐year period. This evidence of overperformance following calls shows a distinct symmetry between the straight debt and equity markets. Issues of debt and equity are both followed by long‐term underperformance, whereas stock repurchases and debt calls are both followed by long‐run overperformance. For our sample of 713 calls of convertible debt, we find little systematic evidence of abnormal performance following the call. Some researchers suggest that calls of convertible debt provide negative signals to the market. Our results provide no support for this claim. In contrast, our evidence of marginal positive long‐run returns provides weak support for the model that calls of convertible debt signal the realization of profitable investment options, and for the price pressure hypothesis.     

The Effect Of Stock Splits On Liquidity And Excess Returns: Evidence From Shareholder Ownership Composition

We examine the influence of firm ownership composition on both the abnormal returns at the announcement of a stock split and liquidity changes following a stock split. We find three results. First, the largest post‐split increase in institutional ownership occurs for firms that had low institutional ownership before the split. Second, changes in liquidity are negatively related to the level of institutional ownership before the split. Last, the abnormal return following a split is negatively related to the level of institutional ownership before the split. These findings are important as they shed new light on the source of stock split announcement returns.     

The Operating Performance of Firms that Switch Their Stock Listings

In this article we examine the operating performance of stocks that switch from NASDAQ to the American Stock Exchange (AMEX) or the New Stock Exchange (NYSE) and from AMEX to the NYSE. Specifically, we investigate whether post‐listing operating performance is consistent with the reported negative long‐term drift of post‐listing stock returns and whether there is evidence of self‐selection of the listing time. We find evidence of negative post‐listing changes in operating return on assets and sales, which, on a match‐adjusted basis, are significant for the relatively small NASDAQ stocks switching to AMEX. We also find evidence that firms self‐select the time of listing changes.     

What Drives Stock Price Behavior Following Extreme One-Day Returns

We identify samples of losers and winners by selecting daily stock price returns in excess of 10% (sign ignored) and determine whether these samples over‐ or underreact. We then identify “informed” events, which correspond to announcements in the Wall Street Journal(WSJ), and “uninformed” events, which are not explained in the WSJ. For winners, there is overreaction in response to uninformed events but no overreaction on average in response to informed events. This finding suggests the degree of overreaction to new information depends on whether the cause of the extreme stock price change is publicly released.     

Political Connection and Stock Returns: A Longitudinal Study

A stock market should display informational efficiency and, therefore, should appropriately reflect the value of political connections, if any value exists. Using a comprehensive data set that incorporates both obvious and less obvious political connections to firms in Thailand, we provide a longitudinal study which shows that higher realized stock returns are systematically associated with political connectedness. Consistent with the view that such a relationship provides economic rents, this finding is particularly prominent in more regulated industries. The politically connected premium is higher for higher level political connections and when the political bodies hold an equity stake in the firm.     

Shareholder Coordination,Information Diffusion and Stock Returns

We show that the quality of information‐sharing networks linking firms’ institutional investors has stock return predictability implications. We find that firms with high shareholder coordination experience less local comovement and less post‐earnings announcement drift, consistent with the notion that information‐sharing networks facilitate information diffusion and improve stock price efficiency. In support of the view that coordination acts as an information diffusion channel, we document that the stock return performance of firms with high shareholder coordination leads that of firms with low shareholder coordination.     

Operating and stock market performance of state-owned enterprise privatizations: The Spanish experience

We investigate the operating and stock market performance of Spanish state-owned enterprises (SOEs) privatized through public share issue offerings (SIPs) from 1990 to 2001, when the last SIP was conducted. We compare the performance of SOEs and privately-owned firms. We find significant operating improvements in Spanish SOEs after the privatization. Specifically, they show significant increases in income efficiency, real sales and employment. Spanish governments tried to minimize the foregone proceeds when selling SOE shares and underpriced them lower than private firms. We relate these results with the pressure of the Maastricht Treaty fiscal criteria, as well as lower information asymmetries between firms and investors. Finally, we do not find long-term abnormal stock market performance after SIPs.     

Does Monetary Policy Have Asymmetric Effects on Stock Returns?

This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of a monetary policy stance are adopted. Empirical evidence from monthly returns on the Standard & Poor's 500 price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear-market regime.     

Can Companies Influence Investor Behaviour through Advertising? Super Bowl Commercials and Stock Returns

Recent research shows that mood and attention may affect investors’ choices. In this paper we examine whether companies can create such mood and attention effects through advertising. We choose a natural experiment by investigating price reactions and trading activity for firms employing TV commercials in 19 Super Bowl broadcasts over the 1969–2001 period. We find significant positive abnormal returns for firms which are readily identifiable from the ad contents, which is consistent with the presence of mood and attention effects. For recognisable companies with the number of ads greater than the sample mean, the event is followed by an average abnormal one day return of 45 basis points. The effect appears to persist in the short term with the 20‐day post‐event cumulative abnormal returns for such firms averaging 2%. We find significant abnormal net buying activity for small trades in shares of recognised Super Bowl advertisers indicating that small investors tend to be the ones most attracted by the increased publicity.     

Operating Performance and Stock Returns of Firms Calling Convertible Preferred Stocks

Abstract:   Using methodologies developed by Barber and Lyon (1996 and 1997 ), we examine the long‐run operating performance and stock returns of firms around in‐the‐money calls of convertible preferred stock. Our study intends to be a direct test of the hypothesis that managers call in‐the‐money convertibles when they view a decline in the firms' performance. We find no evidence that calling firms underperform non‐calling benchmark firms. On the contrary, we find mild evidence that the post‐call operating performance of calling firms is better than a carefully selected group of benchmark firms and call firms' post‐call stock returns are no worse than benchmark firms.     

Explaining Monday Returns

The Monday effect is reexamined using two stock indexes and a sample of 452 individual stocks that trade on the London Stock Exchange. The results based on conventional test methods reveal a negative average return on Monday. Extending the analysis to examine the effects of various possible influences simultaneously, the average Monday return becomes positive and does not differ significantly from the average returns of most other days of the week. Fortnight, ex‐dividend day, account period, (bad) news flow, trading activity, and bid‐ask spread effects are all controlled for. The results broadly support the trading time hypothesis.     

Distinguishing Between Rationales for Short‐Horizon Predictability of Stock Returns

In this paper, we shed light on short‐horizon return reversals. We show theoretically that a risk‐based rationale for reversals implies a relation between returns and past order flow, whereas a reversion in beliefs of biased agents does not do so. The empirical results indicate that returns are more strongly related to own‐return lags than to lagged order imbalances. Thus, the evidence suggests that monthly reversals are not completely captured by inventory effects and may be driven, in part, by belief reversion. We do find that returns are cross‐sectionally related to lagged imbalance innovations at horizons longer than a month.     

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.     

Information and Long‐Term Stock Performance Following Open‐Market Share Repurchases

We find that firm managers have private information when they decide on open‐market share repurchases, and that this information is significantly correlated with announcement period and post‐announcement abnormal returns. We further find that long‐term post‐announcement abnormal returns are related to private information differently for firms that actually repurchase shares when compared to firms that announce a repurchase program but do not acquire shares. Our results indicate that managers’ private information is only ambiguously revealed by the repurchase announcement, and that the market waits for the firm's subsequent actions, such as actual repurchase, to further interpret the private information.     

Order Flows and Stock Returns: Compensation for Market Makers with Inventory Concerns

We investigate whether market makers with inventory concerns are compensated with subsequent monthly returns in the cross‐section. We find a significant negative relation between order flows and monthly returns, “the order flow effect,” suggesting that market makers lower prices for stocks with sell order flows and demand a reward in the form of higher expected returns. Further, the order flow effect is stronger for high‐volatility or high‐volume stocks for which market makers have serious inventory concerns. Funding liquidity of market makers also affects the order flow effect. Finally, our finding is independent of existing regularities and robust to the decimalization.     

Stock returns,aggregate earnings surprises,and behavioral finance

We study the stock market's reaction to aggregate earnings news. Prior research shows that, for individual firms, stock prices react positively to earnings news but require several quarters to fully reflect the information in earnings. We find a substantially different pattern in aggregate data. First, returns are unrelated to past earnings, suggesting that prices neither underreact nor overreact to aggregate earnings news. Second, aggregate returns correlate negatively with concurrent earnings; over the last 30 years, for example, stock prices increased 5.7% in quarters with negative earnings growth and only 2.1% otherwise. This finding suggests that earnings and discount rates move together over time and provides new evidence that discount-rate shocks explain a significant fraction of aggregate stock returns.     

Temporal Patterns in Foreign Exchange Returns and Options

Although the foreign exchange market is believed to be one of the most efficient financial markets in the world, there is significant evidence that technical analysis is profitable in this market. In this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns. We find that strategies using information from at-the-money options were more consistently profitable than the commonly used strategies based on only historical spot exchange rates (past prices). Consequently, options appear to contain information regarding future spot exchange rate movements.     

Stock Splits and Bond Yields: Isolating the Signaling Hypothesis

One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets’ interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits.     

Conflicts of interest and China's A-share underpricing

The extremely high A-share underpricing in China's primary market provides us with a very interesting area of empirical research. Previous studies on China's IPO underpricing have been suggestive, but inconclusive. A significant decline in A-share underpricing is found in 2003 relative to previous years (and much less than that recorded in the literature to date). We examine the validity of previous A-share underpricing models, reported in the literature, and find a statistically significant structural break in the data during 2003 when these models are specified. We further explore conflicts of interest in the Chinese IPO market and specify an alternative model to further examine this change in observed market behavior. Our results suggest that a contract with high underwriter's fee leads to less A-share underpricing. Our results also suggest that the asymmetric information hypothesis does not apply in the Chinese IPO market in 2003. Overpricing by the secondary market and the trading activity on the first trading day are the main functions of the A-share underpricing. This study has important implications such as guiding the Chinese government policy regarding the regulations of initial public offering.     

Board composition and operational risk events of financial institutions

We investigate the relation between board composition and operational risk events of financial institutions in the period from 1996 to 2010. Drawing from corporate governance literature, we consider the impact of board characteristics on the likelihood of operational risk events. Overall, our findings suggest that board size is negatively and non-linearly associated with the possibility of operational risk events. For the event types of “Clients, Products, and Business Practices,” and “Internal Fraud and External Fraud,” firms with a higher proportion of independent directors are less likely to suffer from fraud or failure to comply with professional obligations to clients. Our results on age and tenure heterogeneity also indicate that having a more diverse board can have an adverse impact on the board monitoring function. These results can shed new light on board demographics and operational risk management in financial institutions.