Stock market surveillance and market performance: The case of Taiwan

In this paper we investigate the effect of warning announcements on the price behaviour of stocks. We also study the effects of various corrective treatments (trading halts, call trading and 100% payment/delivery with order) on the performance of stocks in the Taiwan stock market. It is found that warning announcements serve to improve the performance of stocks, except in the case of consecutive warnings. Generally speaking, the corrective measures taken after the consecutive warnings are able to reduce the volatility, the abnormal returns and the excess liquidity of the stocks.The authors are Professors from the National Sun Yat-sen University, and the Securities and Exchange Commission respectively.     

Corporate Headquarters Relocation: Evidence from the Capital Markets

This paper assesses the stock market reaction to announcements of corporate headquarters relocations and examines financial and geographical factors related to wealth effects and factors that influence the decision to relocate corporate headquarters. The results indicate that announcements of relocations are associated with significant positive stock price effects. On average, the stock price of relocating firms increases by 1.29% during the two-day period around the announcement. Abnormal returns are positively related to the availability of labor and negatively related to the cost of living in the new location and the change in employment levels. A logit analysis indicates that the probability of a firm relocating is partially determined by the firm size and the rental expenses/sales ratio. The results also indicate that firm size, the employment/asset ratio levels, and listing in the NYSE/AMEX affect the decision to relocate to a Fortune-ranked city. Finally, firms relocating to Fortune -ranked cities are characterized by a high level of insider ownership relative to firms moving to non-ranked cities.     

Research notes and communications: The effect of product recall announcements on shareholder wealth

Previous research Has found that product recall announcements in the automobile industry are associated with negative abnormal returns. We extend this research by examining announcements of product recalls and products taken off the market outside the automobile industry. We find negative abnormal returns for these announcements and that the returns are significantly more negative when products are replaced (or the purchase price is returned) than when the products are checked and repaired. We find only limited evidence that government-ordered recalls produce more negative returns than voluntary recalls.     

REIT Dividend Policies and Dividend Announcement Effects During the 2008–2009 Liquidity Crisis

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008–2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower market‐to‐book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going‐concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post‐announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post‐announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.     

Resource Combination and Security Price Reactions: The Case of Real Estate Joint Ventures

Joint ventures are a commonplace occurrence in the U.S. economy. In particular, firms undertaking real estate projects frequently use the joint venture as a method of combining resources. This paper examines security price reactions around real estate joint venture announcements. The evidence indicates that significant increases in the values of the participating firms occur within a two-day announcement period. The changes in values appear to be due principally to the amount of information about the local real estate market possessed by the participating firms, and an information signal about the potential financial viability of the proposed project conveyed by the presence of anchor tenants. While the results are important in their own right, they are also significant in another respect. They seem to confirm the efficiency with which the capital market processes information about the markets for trading real estate claims.     

The Separation of Real Estate Operations By Spin-Off

In this paper, we consider spin-offs as a vehicle to separate real estate operations from other real estate and/or non-real estate operations. For a sample of 33 such spin-offs announced and completed between 1962 and 1982, we document significantly positive abnormal returns around spin-off announcements. Using the standard event-time methodology, we find average excess returns of 5.7% in the two-day interval surrounding the first Wall Street Journal report of a pending spin-off. While the gains associated with spin-offs by real estate firms are positive on average, they are small in comparison to the 9.1% two-day announcement period abnormal returns surrounding proposals by non-real estate firms to divest real estate operations.     

A comparative analysis of layoff announcements and stock price reactions in the United States and Japan

Downsizing and layoffs are an important mechanism for U.S. firms to cope with their strategic and economic environment. In contrast, the Japanese tradition of lifetime employment limits the ability of firms to employ layoffs as a strategic measure, relegating its use to conditions of financial distress. This paper provides the first comparison of layoffs in Japan and the United States and examines stock price reactions to layoff announcements in each country from 1990 to 1994. Agency theory and Aoki's cooperative game theory are employed to discuss differences in the governance structures of U.S. and Japanese firms and their implication for stock price reactions. Results show that layoff announcements trigger negative returns for both U.S. and Japanese firms. Specifically, layoff announcements of U.S. firms are associated with a negative 1.78 percent abnormal return, while layoff announcements for Japanese firms are associated with a negative 0.56 percent abnormal return. To better understand the impact of layoffs, this study examines the relationships between stock price reactions and various layoff characteristics (such as whether the layoff is proactive or reactive or whether the layoff is the first in the industry). Implications of the findings are discussed. © 1997 John Wiley & Sons, Ltd.     

Cooperative R&D and the Value of the Firm

In this paper, we investigate the stock price responses of listed firms in the U.S. markets to announcements of R & D collaborations. We find that abnormal returns of stocks are significantly positive after R & D collaborations are announced. The positive stock price response towards the R & D cooperation initiations can be partially explained by the nature of the collaborations and the characteristics of the participating firms. We also find that the stock prices of rival firms respond negatively to announcements of R & D cooperation. This result seems to support the hypothesis that cooperative R & D improves economic efficiency of the cooperative firms that gain competitive advantage. We do not find evidence supporting the hypothesis that R & D cooperation creates collusive, anticompetitive effects in the product market.     

Franco-Chinese Joint-Venture Formation and Shareholder Wealth

The main purpose of this article is to test the stock market reaction to Franco-Chinese joint venture announcements and to determine whether it is correlated with joint venture-specific and partner-specific factors. Certain factors specific either to Franco-Chinese joint ventures' characteristics (such as coastal or inland location of French investors in China, capital ownership of French and Chinese partners in the joint ventures, announcement date, business activity of the Franco-Chinese joint ventures) or to French partners (such as their experience in managing Franco-Chinese joint ventures, their international, European experience, and more particularly their experience of Asia) will be analysed with respect to their shareholder value creation. A research sample was prepared from the publication of information on Franco-Chinese joint venture announcements in the French daily newspapers Les Echos and La Tribune between 1994 and 2000 (seven years were analysed). It is important to stress that the announcements used in this sample corresponded to the sole formation of joint ventures. This research sample was made up of 47 Franco-Chinese joint venture announcements for which the relevant abnormal returns (AAR and CAAR) were evaluated. A negative and significant valuation effect was reported for Franco-Chinese joint venture announcements for a reduced event window spanning 7 days around the day of announcement. Among the eight different variables associated with shareholder value creation, only two of them appear to be statistically significant: announcement date and international experience of French partners. First, two opposite time trends were stated in the stock market reaction (negative reaction from 1994 to 1997 and positive from 1998 to 2000). Second, French companies possessing high international experience benefit from an important and positive stock market reaction.     

On the Relation between Local Amenities and House Price Dynamics

This study explores the extent to which local amenities are related to house price volatility, returns and risk‐adjusted returns across 238 MSAs. We find strong evidence that high amenity areas experience greater price volatility. In regards to returns, high amenity areas experience greater (lower) real returns in appreciating (depreciating) markets. However, high amenity areas experience little to no abnormal risk‐adjusted returns. Results from the study are robust to an endogenous treatment of amenities and land supply elasticity. Overall, we conclude that the desirability of a metropolitan area is a significant channel through which land values drive house price dynamics.     

Stock Market Response to Voluntary Liquidations and Reorganizations of Real Estate Corporations

Announcements of voluntary liquidation or reorganization by real estate corporations are analyzed. There is a positive stock price response to announcement of liquidation, and a negative stock price response to announcements of reorganization. Results were the same before and after the 1978 Bankruptcy Reform Act took affect.     

Patterns of abnormal returns and the competitive effects of horizontal mergers

This paper examines the abnormal stock returns of rivals of firms undertaking horizontal mergers that were challenged by the FTC over the period 1981–1987. At the time of merger announcements, the rivals earn positive abnormal return on average; at the time of the antitrust complaints, the rivals earn normal returns. Past studies have argued that this specific pattern of abnormal returns necessarily indicates that mergers could not have reduced competition. This paper finds that this pattern of abnormal returns is a result of the different effects of antitrust complaints on smaller and larger rivals. The evidence suggests that the mergers may have created efficiencies, but the pattern of abnormal returns is not inconsistent with mergers that may also have resulted in higher product prices.     

Smallholder market participation under transactions costs: Maize supply and fertilizer demand in Kenya

This paper assessed the effects of transactions costs—relative to price and non-price factors—on smallholder marketed surplus and input use in Kenya. A selectivity model was used that accounts for the effects of transactions costs, assets, technology, and support services in promoting input use and generating a marketable surplus. Output supply and input demand responses to changes in transactions costs and price and non-price factors were estimated and decomposed into market entry and intensity. The results showed that while transactions costs indeed have significant negative effects on market participation, institutional innovations—such as group marketing—are also emerging to mitigate the costs of accessing markets. Output price has no effect on output market entry and only provides incentives for increased supply by sellers. On the other hand, both price and non-price factors have significant influence on adoption and intensity of input use. Overall, the findings suggest that policy options are available other than price policies to promote input use and marketed surplus. The paper concludes with implications for policy to induce greater input–output market participation among smallholders in Africa.     

CPF stocks: Prices,returns and volatility

We identify a unique phenomenon in the Central Provident Fund (CPF) stocks where stock prices increase in the absence of fundamental changes in firm value. CPF stocks are stocks endorsed by the Central Provident Fund Board in Singapore as approved investment for its members. CPF stocks offer significant price appreciation and value preservation as well as abnormal returns in the bull market before the October 1987 market crash. We find evidence of noise trading in bull markets and price pressure effects that persist through bearish market conditions.The authors are from the Department of Finance and Banking, National University of Singapore.     

REIT Stock Market Volatility and Expected Returns

We study the relation between REIT stock volatility and future returns, focusing particularly on the financial crisis period of 2007–2009. There is ongoing debate about whether stock volatility can forecast future returns. Our findings suggest that REIT‐implied volatility is negatively related to contemporaneous stock returns; there is a significant positive relationship between REIT implied volatility and future stock volatility; and there is a significant negative relation between REIT implied volatility and future stock returns. Lastly, we develop trading rules based on REIT implied volatility to test whether these relationships are exploitable. The result suggests a potentially profitable trading strategy.     

Longer term housing market effects of a major US airport closure

Using a unique dataset, we examine various effects of closing Denver's Stapleton Airport, and subsequent redevelopment, on nearby housing markets. We find immediate anticipatory price effects upon announcement, but no price changes at closing and little evidence of upward trending prices between announcement and closing. Post-closure, more higher income and fewer Black households moved in, and developers built larger houses on larger lots. Increases in the price of pre-existing housing are also found. Finally, we find that post-closing price increases were largest in areas that were closest to the center of new commercial development and that had greater exposure to new housing construction.     

A quantitative analysis of trade policy responses to higher world agricultural commodity prices

The worldwide spike in prices of agricultural commodities in 2007–2008 elevated food security and social stability issues to the forefront, especially in many food-deficit countries. In order to mitigate the global food commodity price pressure on domestic markets, several major exporting and importing countries, mostly developing economies, adopted trade policy changes such as export bans (or raising export restrictions) or reducing import tariffs during the same period. This paper estimates the potential impacts of these policies on the world prices and trade of major agricultural commodities using a set of multi-country, multi-commodity, and partial-equilibrium models. Our findings suggest that over all, the trade policy responses in various countries increased the prices of all agricultural commodities, although the impact on the total net trade varies by commodity. The simulation results show that the overall impact of trade policy distortions on the world rice price is most significant at 24%, followed by wheat (14%) and barley (9%). In general, the poorer food-deficit countries/regions, which have limited power to manipulate their trade policies, experienced higher price increases compared to those major trading countries that adopted policy interventions. Also, the developing countries that are net importers which did not implement trade policy interventions experienced significant welfare losses resulting from interventions implemented by other major trading countries.     

Whether and when do alliance terminations pay off?

Engaging in multiple strategic alliances, a firm forms an alliance portfolio. While a larger alliance portfolio signals investors a firm's ability to exploit new opportunities and improve financial performance, having multiple alliances may also undermine financial performance due to a firm's limited ability to effectively manage these alliances. Announcing an alliance termination, a firm signals an intention to increase the effectiveness of a larger alliance portfolio. This article examines the extent to which alliance termination announcements create value for firms with multiple alliances. Building on the resource-based view of the firm and organizational learning literature, the paper hypothesizes a U-shaped relationship between alliance portfolio size and a firm's cumulative abnormal stock return following an alliance termination announcement. This effect is moderated by the amount of a firm's alternative resources and partner-specific experience that affect its ability to effectively manage multiple alliances. The results show that alliance termination announcements create firm value when an alliance portfolio is large.     

Value Creation in REIT Property Sell-Offs

We examine major sales of real property by public U.S. Real Estate Investment Trusts (REITs) 1992–2002. We find that abnormal shareholder returns are significantly positive, a result that is consistent with findings for conventional firms that sell off real estate. Because REITs do not pay taxes, this finding supports the view that abnormal returns in real estate sell-offs by all types of firms are derived largely from asset allocation efficiencies and do not result exclusively from tax benefits. Shareholder returns are lower in sell-offs motivated by a desire to reduce long-term debt, as is consistent with financial theory regarding the information content of leverage decisions. Returns are inversely related to the firm's operating performance prior to the sell-off announcement, further supporting the case that improved asset efficiencies create value in real estate sell-offs.     

The influence of the financial press on stockholder wealth: the case of corporate governance

This study examines the impact that the publication of ratings of boards of directors by the business press has on stockholder wealth. We report findings from an event study of price reactions to the publication of Business Week's 1996 and 1997 ratings of boards of directors of U.S. corporations. As hypothesized, favorable ratings resulted in significant positive abnormal returns after controlling for market effects and confounding events, with only novel information explaining statistical variance. Contrary to expectations, unfavorable ratings also resulted in positive abnormal returns. Copyright © 2005 John Wiley & Sons, Ltd.