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.     

The Stock market impact of social pressure: The South African divestment case

Using the South African divestment case, this study tests the hypothesis that social pressure affects stock returns. Both short-run (3-, 11-, and 77-day periods) and long-run (13-month periods) tests of stock returns surrounding U.S. corporate announcements of decisions to staf or leave, South Africa were performed. Tests of the impact of institutional portfolio managers to divest stocks of U.S. firms staying in South Africa were also performed. Results indicate there was a negative wealth impact of social pressure: stock prices of firms announcing plans to stay in South Africa fared better relative to stock prices affirms announcing plans to leave.     

The role of the seller’s stock performance in the market reaction to divestiture announcements

Divestitures have the potential to create shareholder value. However, the extent of the market reaction should depend on the likelihood of finding more valuable uses for the divested assets or the ability on the part of the seller to eliminate negative synergies. We hypothesize that strong performers have less scope to achieve substantial improvements compared to poorly performing firms. Using the seller’s stock return in excess of the market return in the 1-year and 2-year periods preceding the divestiture announcement to expose the divesting firm’s inefficient use of its assets, we show that the market reaction to divestiture announcements is significantly higher for underperforming firms. The difference in abnormal returns can be as high as 4 %. In contrast, none of the accounting-based variables that have been used in previous studies are found to be significantly related to the announcement returns. These results suggest that the firm’s stock performance is a more useful indicator of the wealth effect associated with divestitures.     

The impact of inventory dynamics on long-term stock returns – An empirical investigation of U.S. manufacturing companies

This paper investigates the relationship between the inventory dynamics and long-term stock returns of a large panel of U.S. manufacturing firms over the time period from 1991 to 2010. We propose two measures of inventory dynamics: one metric to assess the fluctuations of quarterly inventories within the year and a second metric to quantify relative year-over-year inventory growth. Our results indicate that within-year inventory volatility (IV) and abnormal year-over-year inventory growth (ABI) are associated with abnormal stock returns. Both metrics cannot be entirely explained by common risk factors. We find that firms with high IV and low ABI have the best long-term stock returns, and that stock performance decreases monotonically with higher ABI values. Our results are robust to various control variables including size, book-to-market value, industry and prior performance. We therefore conclude that changes in inventory levels provide valuable insights into the risks and opportunities faced by a company.     

Investment banks advising takeover targets

Should takeover target firms hire top-tier investment bank advisors? For a sample of mergers and acquisitions between publicly traded U.S. acquirers and targets, in deals in which targets hire top-tier banks, targets earn higher premiums and abnormal returns; the probability of stock payment is lower, especially when bidder stock is potentially overvalued; acquirers, however, do not necessarily earn lower abnormal returns, and combined returns are higher. Controlling for self-selection does not erode, but, in some cases even strengthens the results. The evidence suggests that top-tier investment banks advising targets benefit shareholders of client firms by making better deals, instead of simply bargaining against the acquirers. The findings shed light on the role of advisor incentives when linking advisor quality and shareholder wealth.     

Institutional Reforms and Investor Reactions to CSR Announcements: Evidence from an Emerging Economy

This study contributes to the limited established empirical research on the impact and relevance of corporate social responsibility (CSR) in the capital markets of emerging economies. We conducted an event study to demonstrate how the timing of CSR announcements by firms that have aligned their strategies to newly instituted social regulations in South Africa influenced stock prices. Using a unique dataset of publicly listed South African enterprises that undertook CSR initiatives during the ten year period from 1996 to 2005, we found that investor reactions to CSR announcements concluded during the late phase of institutional reforms are viewed positively by investors. Furthermore, CSR announcements of substantive monetary value result in significantly higher shareholder returns.     

Executive compensation,method of payment and abnormal returns to bidding firms at takeover announcements

This study investigates the association between method of payment, long-term performance plans, managerial stockholdings and abnormal returns to bidding firms at takeover announcements, using a cross-sectional regression methodology. Previous studies have examined each of these factors separately. The results indicate that firms with long-term performance plans and high managerial stockholdings in cash offers experience significantly higher abnormal returns at the announcement of mergers prior to 1980. The study provides additional evidence in explaining the previous conflicting results (Jensen and Ruback, 1985), examining the stock market reaction of bidding firms at merger announcements.     

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.     

The reaction of security prices to tracking stock announcements

This paper provides some empirical evidence on a relatively new and increasingly prevalent form of equity restructuring called tracking stock. We identify the effects associated with tracking stock announcements by excluding from our sample those announcement events that include other significant news announcements on the event date, such as announcements of acquisitions and earnings. For the 35 announcement events that fit this criteria, we find a mean abnormal return of over 3 percent in the two-day period surrounding the announced proposal to issue a tracking stock, with 30 of the 35 firms in the sample earning positive abnormal returns. The views expressed in this paper are that of the author(s) and do not reflect the views or opinions of Deutsche Bank Securities Inc. or any of its affiliates.     

中国上市公司战略联盟宣告对股东财富的影响研究

战略联盟作为广泛应用的战略工具,影响着上市公司的股东财富。本文采用事件研究方法,针对2002至2006年的90个战略联盟宣告进行实证分析,检验战略联盟的宣告对股东财富的是否存在正向影响,进而研究公司规模和科技含量与累积异常收益率的关系。     

The Information Content of Concurrently Announced Earnings, Cash Dividends, and Stock Dividends: An Investigation of the Chinese Stock Market

The firms listed on China's stock market are less than ten years old and to date there has been relatively little research on the usefulness of their accounting disclosures for investors. This study focuses on the information content of annual earnings and dividend announcements made by listed Chinese companies. Earnings, cash dividends, and stock dividends are announced concurrently in China and so this allows for tests of their information usefulness and of the interactions between the three signals. Based on a data set of up to 1,232 announcements, we find that unexpected earnings, proxied by earnings changes, are positively related to abnormal returns. Thus, earnings are used by investors in setting market prices. Stock dividends corroborate or attenuate the earnings signal. If the sign of the unexpected stock dividend (increase, decrease) is the same as the sign of the unexpected earnings, then the earnings signal is stronger. If the signs are opposite, the earnings signal is weaker. Unexpected cash dividends have little impact on the earnings signal. Stock dividends per se have a small association with stock returns. In contrast, cash dividends have no discernible association with stock returns and this is consistent with dividend irrelevance arguments. Our results are robust across a number of sensitivity tests.     

Market value,market share,and mergers: Evidence from a panel of U.S. firms

Improving shareholder value has often been cited as a merger determinant. Because mergers create larger firms and less competition, they may increase shareholder value through higher market share and stock‐market value. We investigate merger impacts on firms' stock‐market value and market share. We construct panel data from 4 different data sources on public merging and non‐merging U.S. manufacturing firms for 1980–2003. Instrumental variables and factors such as R&D, patents, and citations control for endogeneity. We find that mergers are positively correlated with stock‐market value and market share.     

Insider trading around open-market share repurchases

We examine insider trading around open-market share repurchases and find that insiders trade passively in 3 months prior to repurchase announcements and in up to 12 months following the announcements. Furthermore, both pre-announcement and post-announcement abnormal insider trading is unrelated to short-term announcement returns but correlated with long-term post-announcement returns. Our results indicate that corporate insiders trade passively around repurchase announcements in accordance with their perceived undervaluation to exploit the long-run abnormal stock returns related to the events.     

Do investments in intangible customer assets affect firm value?

This paper develops a simple model of investment by service firms in intangible customer assets, and tests whether the model identifies some critical drivers of firms’ stock returns. Similar to firms with significant research and development (R&D) expenditures, we argue that firms in fast-growing service industries with few tangible assets can increase firm value by investing in customer acquisition and service (A&S) expenditure. Using a unique hand-collected data set, we show that per-customer changes in firms’ revenues, customer acquisition costs, and customer service costs help to explain their abnormal stock returns.     

Stock price reactions to stock dividend announcements: A case from a sluggish economic period

The 2007 financial crisis and the Great Recession that followed resulted in a loss of confidence among investors, and regaining their full trust and confidence has been a challenge for companies. Although economic growth has been volatile throughout the postwar World War II period, recent growth (2008–2015) has been remarkably weaker than in the previous low-growth period (1974–1995). The 2006–2015 period is often characterized by sluggish economic growth. This study investigates stock price reactions to stock dividend announcements, 30 days before and after the announcement dates, of publicly traded companies in the period 2006–2012. We use an event study methodology for 460 events and daily stock price data for companies in the CRSP historical data set. The study shows a significant reaction in stock prices around the event date. On average, stock prices reacted positively to stock dividend announcements. However, compared to previous findings of abnormal returns (5.9%), results from this study show small abnormal returns (about 1.81%) attributable to stock dividend announcements that are cumulative of the announcement day and up to 3-day post-announcement days. Our estimates are even lower than the 2.01% stock price reaction obtained in the 1987–1996 period.     

Corporate entrepreneurship and acquisitions: creating firm wealth

Acquisition is one way entrepreneurial firms have to capture the assets needed to achieve their strategic objectives. We investigate shareholder value creation of Spanish listed firms in response to announcements of acquisitions over the period 1991–2006. Similar to foreign markets, bidders earn insignificant average abnormal returns regardless of the pricing model used in the estimation procedure. When we relate these results to company and transaction characteristics our evidence suggests that the listing status of the target firm is a critical key in the strategic decision to acquire a company. This listing status effect is mainly associated with the fact that unlisted firms tend to be smaller and lesser–known firms, and thus suffer from a lack of competition in the market for corporate control. Consequently, the payment of lower premiums and the possibility of diversifying shareholders’ portfolios lead to unlisted firm acquisitions being viewed as value–orientated transactions which have major implications for managers.     

Liquidity,earnings management,and stock expected returns

This paper examines the relationships among liquidity, earnings management, and stock expected returns by using a sample of Chinese listed firms to investigate 22,022 firm–year observations from 1998 to 2018. Our study reveals that an increase in stock liquidity is associated with a decrease in the degree of earnings management. This result is robust to the use of alternative measures when endogeneity concerns are controlled for. Moreover, the findings indicate that the stock liquidity component of earnings management is positively associated with future stock returns in Chinese firms. Our results reveal that the stock liquidity component of short-termism in managerial decisions plays a critical role in determining future stock returns.     

New evidence on shareholder wealth effects in bank mergers during 1980-2000

This paper employs two unique bank event study methodologies to calculate abnormal returns for bidder, target and combined firms. The first methodology is a modified market model that controls for shocks common to the banking industry. The second is an EGARCH (1, 1) model that adjusts for the violated regression assumptions of the traditional market model event study. The results of both methodologies reveal that target shareholders enjoy significantly positive abnormal returns, whereas the bidder shareholders experience significantly negative abnormal returns. Overall, announcements of bank mergers generate positive wealth effects for the combined shareholders. However, the evidence presented in this paper underscores the importance of the choice of models describing stock returns in examining the impact of bank mergers.     

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.     

An empirical analysis of cross-security information asymmetry and the “pecking order” hypothesis

This paper suggests that any examination of the “pecking order” hypothesis must consider the possibility that a firm's level of information asymmetry is related to the type of security it issues. The empirical results show that, on average, firms issuing common stock exhibit higher information asymmetry levels (as proxied by financial analysts' earnings forecast errors) than do firms issuing debt. However, after controlling for information asymmetry, abnormal returns to common stock announcements remain significantly less than those of debt issues which supports the existence of a “pecking order” in capital procurement.