Accounting‐Based Probabilistic Prediction of ROE,the Residual Income Valuation Model and the Assessment of Mispricing in the Swedish Stock Market

Using Swedish stock market data, this study investigates whether an investment strategy based on publicly available accounting information can generate abnormal investment returns. The strategy involves two steps. First, an accounting‐based probabilistic prediction model of changes in the medium‐term book return on owners' equity (ROE) is estimated. Second, market expectations of changes in medium‐term ROE are assessed through observed stock prices and the residual income valuation model. Stock market positions over 36‐month holding periods are taken when the accounting‐based predictions of ROE and the market expectations differ. Over the period 1983–2003, the investment strategy generated values of Jensen's alpha corresponding to an average monthly excess return for a hedge position of up to 0.8% for a sample of manufacturing companies. In the main this hedge return was caused by strong positive returns to the long positions, and additional analyses show that the returns appear to have been affected by a positive market sentiment bias (i.e., positive ROE surprises being associated with stronger price reactions than negative ROE surprises) making out‐of‐sample inferences somewhat dubious. Furthermore, most of the investment returns accrued over holding periods up to around 1995, with no indications of market mispricing over the last third (1995–2003) of the investment period. The empirical results are consistent with market investors having become more sophisticated in their use of publicly available accounting information over time.     

大股东股权质押与上市公司资本运作

资本运作一方面可以提高股价,另一方面可以让公司股票停牌,那么是否会成为大股东度过质押风险的方式呢？基于此,本文以2007—2018年我国A股上市公司为研究对象,考察了大股东股权质押对上市公司资本运作的影响及其作用机制。研究发现:(1)大股东股权质押比例越高,上市公司进行资本运作的可能性越大; 这一关系在质押股权面临的平仓风险越高和非国有控股的上市公司中更为显著。(2)机制检验发现,随着质押比例的提高,上市公司进行资本运作后的停牌时间越长;从股价提升的效果来看,资本运作在短期内能提高股价,缓解质押风险,但从长期来看效果并不显著。(3)上市公司进行资本运作的方式主要为股权转让、资产收购和资产剥离;其中,大股东主要利用资产收购和资产剥离增加停牌时间,利用股权转让助推股价。在控制了潜在的内生性问题影响以及各种稳健性检验下,上述结论仍然成立。     

Does Cross-Listing Benefit the Shareholders? Evidence from Companies in the GCC Countries?

The goal of this study is to estimate the impact of cross-listing on stock returns, on liquidity, and on risk. A sample of 24 companies from the Gulf Cooperation Council countries which cross-listed their stocks in a foreign market over the period 2000–2010 were chosen for study. An event study estimating abnormal returns related to the cross-listing event as well as parametric and nonparametric tests find that there is (1) a significant abnormal return of about 6 % that lasts until 6 days after the cross-listing day and starts fading away thereafter (2) a significant increase in liquidity during the event period for most firms and (3) on average a decrease in risk. Our results also suggest that cross-listing had a small impact on market risk measured by the average beta but led to a decrease in the total risk measured by standard deviation of returns and a decrease in the potential loss measured by the average value at risk at the 5 % confidence. Additionally, an analysis based on the foreign market of secondary listing suggests that the benefit of cross-listing varies with the market of secondary listing. The positive abnormal return is more obvious for companies that cross-listed in Kuwait, Bahrain, and London. The most obvious increase in liquidity is for firms that cross-listed in London or in Bahrain and the biggest decrease in risk is for companies that cross-listed in London. We conclude overall that cross-listing in London benefits the shareholders the most as it leads to positive significant abnormal returns, an increase in liquidity, and a decrease in risk.     

委托代理及其对网络型产业并购绩效的影响——基于信息技术业的实证证据

本文以信息技术业为例,对网络型产业并购的市场预期绩效和经营绩效进行实证考察。研究表明,并购事件公布所引致的市场异常收益说明中国证券市场属于非半强式有效;委托代理问题的存在使得并购方和目标方的累积异常收益率都会上升;在个人理性和兼容性约束的共同作用下,目标方经营绩效会得到提高,但并购方却出现降低。因此,完善证券市场信息披露制度、建立具有竞争机制的职业经理人市场及引入现代企业制度和公司治理机制,对提高网络型产业并购绩效具有重要意义。     

Effectiveness and Market Reaction to the Stock Exchange's Inquiry in Australia

Abstract:  This paper examines a unique stock market monitoring program used by the Australian Stock Exchange (ASX) . When the ASX observes unusual share price or trading volume changes of a listed company, it sends a letter demanding an explanation. Companies need to respond publicly to several stylized questions. Such public communications between the stock exchange and listed companies contain information. This paper documents how companies respond to the ASX inquiry and how the market reacts to the replies. It is found that some companies do release new information to the market when asked. After the firm's reply is posted, the average trading volume and the bid-ask spread are reduced, and in most cases, the share price is also stabilized with the following two exceptions: (1) The price will continue to rally on average if the company releases only partial information when questioned after a significant price jump; (2) The downward price trend will be reversed if the company states that no new information could explain the decline. Furthermore, there are statistically significant, positive abnormal returns for the first five trading days, which are not conditional upon the replies firms give to the ASX inquiries.     

Regulator's Determination of Return on Equity in the Absence of Public Firms: The Case of Automobile Insurance in Ontario

In a regulated market, such as automobile insurance (AI), regulators set the return on equity that insurers are allowed to achieve. Most insurers are engaged in a variety of insurance lines of business, and thus the full information beta methodology (FIB) is commonly employed to estimate the AI beta. The FIB uses two steps: first, the beta of each insurer is estimated, and then the beta of each line of business is estimated, as the beta of an insurer is a weighted average of the betas of the lines of business. When there are a sufficient number of public companies, company and market returns are used. Otherwise, researchers have resorted to using accounting data in the FIB. Theoretically, the two steps are not separable and the estimation should be done with one step. We introduce the one‐step methodology in our article. The one‐step and two‐step methodologies are compared empirically for the Ontario market of AI. Insurers in Ontario are predominantly private companies; thus, accounting data are used to estimate the AI beta. We show that a significant bias is introduced by the traditional, two‐step FIB methodology in estimating the betas for different lines of business, while insurers’ betas are very similar under both methods. This has a significant application to the estimation of betas of “pure players” in classic corporate finance. It implies that their betas and hence the resulting, required rates of return used in the net present value calculations should be estimated based on the one‐step method that we develop in this article.     

会计信息披露政府监管的经济后果——来自中国证券市场的经验证据

本文选取会计稳健性作为衡量会计信息质量指标,运用股票收益模型和盈余持续性模型来考察深沪证券交易所设立的诚信档案制度对上市公司会计信息质量的改善程度,籍此评价政府有关机构对我国证券市场会计监管措施的效果。研究结果表明:诚信档案制度对我国上市公司的会计信息质量提高具有一定的促进作用,但作用效果并不十分显著。这说明,我国政府部门对证券市场实施的一系列会计监管措施,在一定程度上能够发挥作用,从而达到缓解会计信息失真,完善市场机制的目的。     

Market risk exposure of merger arbitrage in Australia

We investigate the risk‐return characteristics of merger arbitrage in the Australian market for corporate control, whereby hedge fund managers acquire companies subject to a takeover offer. On average, a strategy of buying target companies and short‐selling bidders making scrip offers would have generated an annual return of 30 per cent from 1985 to 2008, excluding transaction costs, compared to the return on the broader market of 12 per cent. However, performance is not market neutral, being positively associated with market returns during downturns and inversely related to market movements during rising markets. The payoffs to this strategy are analogous to a short straddle, whereby the investor is short a call and put option at the same exercise price. These results are consistent with large‐sample evidence from the United States and the United Kingdom and have not previously been documented in Australia, in which prior evidence is based only on cash deals during the 1990s.     

How Do Investors Interpret Announcements of Earnings Delays?

Unlike in the case of delays of 10‐K or 10‐Q filings, the SEC does not require managers to disclose delays of earnings announcements to the public. Thus, for companies that are unable to report earnings by their expected date, managers face a decision: remain silent or announce the delay. Prior research has investigated all earnings delays, whether or not they are accompanied by announcements of the delay announcement, and found that the market reaction is slightly negative, on average, for companies that allow their expected earnings dates to pass without disclosing results. It's not clear, however, whether this negative reaction was due to the absence of news or to the information contained in the announcements of the earnings delays. The authors' recent study documents that earnings delay announcements are associated with an average one‐day abnormal stock return of a negative 6%. This statistically as well as economically significant reduction in value is consistent with anecdotal evidence in the popular business press as well as predictions of disclosure theories, in particular the explanation that concerns about legal liability and managerial reputation motivate managers to disclose bad news. The study also shows that almost all managers who announce earnings delays attempt to influence the market reaction by disclosing the underlying cause. Finally, the study shows that the market reaction to earnings delay announcements is positively related to future earnings changes, consistent with the role of these disclosures in providing a signal of deteriorating financial performance.     

Product market competition and the value of corporate cash: An agency theory explanation

In this paper, we document the effect of product market competition on cash value and provide evidence supporting the agency discount mechanism. Using the regulation-induced IPO suspensions in China as shocks to product market competition, we find that reduced competition threat, induced by competitors' IPO delay, decreases incumbent firms' value of cash reserve. The effect of IPO suspension on cash holding is more pronounced for companies with severe agency problems and loose governance mechanisms but not statistically different across high and low predation threats. Furthermore, we show that the marginal value of cash increases when IPO restarts, and our baseline results hold in both a large sample and a matched sample of firms. Our paper contributes to the literature by providing the plausibly causal effect of product market competition on cash value and an explanation from the perspective of competition's disciplinary role in mitigating managers' slack.     

Oil price shocks,policy uncertainty,and stock returns of oil and gas corporations

This paper investigates the effects of oil price shocks and economic policy uncertainty on the stock returns of oil and gas companies. We find that an oil demand-side shock has a positive effect on the return of oil and gas companies on average, whereas shocks to policy uncertainty have a negative effect on the return. Historical decomposition shows that the effects of oil shocks on the stock return are amplified by the endogenous policy uncertainty responses. These results are consistent with those for major integrated oil and gas companies. The return responses, however, show heterogeneous effects of structural shocks on upstream, midstream, and downstream oil and gas companies, suggesting that a well-diversified portfolio is obtainable.     

Does consideration matter to China’s split share structure reform?

We investigate the share market response to China’s split share structure reform and find average negative daily return around the government announcement on 29 April 2005. However, there is a turnaround at individual companies’ decision to implement the reform where we find positive and significant average daily return, contingent on the type of consideration. We attribute this change in market sentiment to the company’s announcement that the reform will involve the payment of consideration to holders of tradable A‐shares. Our results also show that holders of tradable A‐shares earn significant abnormal daily returns when companies propose to pay in cash or warrants or combine any of these payment methods with bonus shares.     

How market smarts can protect property rights

Intellectual property comprises an ever-increasing fraction of corporate wealth, but what's the good of that if an ever-increasing fraction of the property is copied or stolen? Faced with developing countries' limited and inadequately enforced patent and copyright laws, some companies are resorting to market-based strategies to protect their intellectual property. These include preempting or threatening competitors, embedding intellectual property in environments that can be protected, bundling insecure intellectual property with its more secure cousins, and actually entering the businesses that pose a threat. The authors urge companies coping with weak property rights to follow a decision tree when choosing which strategies to use and when: Start by thinking of the strategies that will protect your business's core. If, for example, a first-mover advantage is within reach, making yourself more committed to intellectual property could be the answer. If you and your rivals are equally matched, ask yourself, "Can those that threaten me with copying be copied in turn?" The knowledge that each of you can hurt the other may dampen the competitive intensity or even lead to voluntary sharing of property. If these solutions fail or don't apply, try forging a connection with a product or business closely related to your own. Doing so may prevent a valued asset from falling into a rival's hands or make the asset harder to misappropriate. This approach can even help you expand your piece of the market pie or reduce the cost of making the threatened product, perhaps to the point where you can compete against pirated goods. Finally, if there still doesn't seem to be a way of making money from your threatened product, you may choose to move into the very business that has hurt your own. Such strategies are behind the economics of successful companies like Intel and NBC, say the authors.     

Equity Issues and Stock Price Dynamics

This paper presents an information-theoretic, infinite horizon model of the equity issue decision. The model predicts that (a) equity issues on average are preceded by an abnormal positive return on the stock, although for some firms the issue is preceded by a loss; (b) equity issues on average are preceded by an abnormal rise in the market; and (c) the stock price drops at the announcement of an issue. The model provides a measure of the welfare cost of asymmetric information; the welfare loss may be small even if the price drop at issue announcement is large.     

Economic policy uncertainty,investor attention and post-earnings announcement drift

How the market incorporates information into stock price is a core issue in finance. This study focuses on the impact of economic policy uncertainty (EPU) on the stock prices information efficiency of China's A-share market and underlying role of investors' attention allocation mechanism. This study analyzes the information efficiency of stock prices using the sensitivity of stock cumulative abnormal return to earnings information across different windows following earnings announcement. Based on the earnings announcement events of listed companies in China's A-share market, this study presents an empirical study of the aforementioned issues using event study and regression analysis methods. The following results are seen: (1) EPU aggravates the underreaction of stock price earnings information and the post-earnings announcement drift in the A-share market. (2) Under highly uncertain economic policies, investors show a limited attention allocation pattern of devoting increasing attention to macroeconomic policies and decreasing attention to earnings information, which leads to a decrease in the information efficiency of stock price. This study also analyzes the heterogeneity of the influence of EPU on stock price information efficiency using the institutional shareholding ratio. The results show that increasing institutional shareholding does not reduce the adverse effects of EPU on the information efficiency of stock prices. This study not only provides empirical evidence for Brunnermeier, Sockin, and Xiong (2022) and rational inattention theory, but also reveals that institutional investors show similar behavioral characteristics to retail investors in China's stock market. The results of this study have policy significance for improving the information efficiency of stock market.     

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.     

Noise trading in small markets: Evidence from Amman Stock Exchange (ASE)

This study aims to analyze the behavior of traders in Amman Stock Exchange (ASE):-firstly at the market level by analyzing the market return volatility, defining the time frame of this volatility, and classifying it as transitory volatility or a permanent volatility, Daily closing of Amman free float market index will be used to indicate the market return during the period from 1/1/1992 to 31/12/2015 where 5899 observations were obtained. Secondly at the firms level by selecting a sample of trading companies and interpreting the results through analyzing some important features of the companies, such as share price and ownership structure, Daily closing of share price of the selected companies will be used to indicate the return during the period from 1/1/2015 to 31/12/2015 where 240 observations were obtained for each company during this period.To achieve the goals of this study, the Variance ratio test, GARCH test, and CGARCH test will be used. The study highlighted an important result that the common culture of traders on ASE was Noise Trading; the significance of this finding was statistically proven at the confidence level of 1%.This study recommends the competent authorities to enact a slew of strict measures: the implementation of Capital Gains Tax in a bid to slash frequent selloffs and purchasing of noise traders and increasing the commission of brokers in return for completing selloffs and purchasing deals. The study also affirmed the necessity of intervening periodically to raise awareness of the negative impact of speculation including the instability, increasing the firm’s cost of capital and the damage to traders’ confidence in the stock markets.     

Postmodern Corporate Finance

One of the core tenets of modern finance theory is that corporations create value by producing operating rates of return on capital that are greater than the cost of capital. “Postmodern” corporate finance, while reaffirming the importance of earning an adequate return on capital, also attempts to restore at least part of the traditional corporate emphasis on top-line growth that prevailed before the intense focus on returns by modern shareholder value advocates. One important reason for the heightened emphasis on growth in addition to returns is that most rate-of-return measures used by companies and investors are based on conservative accounting practices that make old assets look more profitable than new ones, thereby discouraging investments in growth. This article introduces a new return measure called “Gross Business Return” that, when evaluated against a Required Return framework that reflects the level of current stock prices, has a stronger correlation with how companies are valued by the stock market. Moreover, in reviewing historical returns over time for both the market and specific industries, the author's research suggests that the market appears to demand considerably lower current returns than those implied by traditional weighted average cost of capital (WACC) approaches. And to the extent corporate executives rely on WACC, they could be passing up valuable growth opportunities. To help evaluate tradeoffs between growth and return, the author introduces a cash-based measure of corporate economic profit called Residual Cash Earnings. Unlike most traditional return and economic profit measures, Residual Cash Earnings, when expressed as a percentage of sales, provides a way for corporate managers to identify growth opportunities that, while producing current returns lower than WACC, are likely to add value over a multi-year time horizon. These new measures and analytical tools are suitable for strategic planning, budgeting, resource allocation, performance measurement, and rewards. Consistent application of these principles across these management processes provides a framework for constantly rebalancing the emphasis on growth and return to adapt to changes in the economy, industry, and competitive landscape.     

Do Corporate Managers Know When Their Shares Are Undervalued? New Evidence Based on Actual (and Not Just Announced) Stock Buybacks

This article summarizes the findings of the authors' recent study, published in the Journal of Financial Economics, of whether public companies are able to repurchase their own shares at a discount to the market, thereby earning more than a market return on such “investments.” To the extent the answer is yes, it would suggest that management has an advantage in assessing the intrinsic value of the companies they manage. Using as their sample all 2,237 publicly traded U.S. companies that repurchased their own stock between 2004 and 2011, the authors compared the average price paid during the month to the average price at which the firm's shares traded during that month as well as three and six months after the repurchase. (All earlier studies had measured stock performance from the date of the repurchase announcements rather than from the date of the actual repurchases.) The authors' conclusion, which may come as more of a surprise to financial economists than practicing corporate executives, was that the majority of companies repurchasing their shares have in fact earned a positive return on their investment in their own stock. Perhaps the most important finding of the study, however, was that infrequent repurchasers—defined as companies that bought back their own stock four or fewer times a year—have been much more successful in buying undervalued shares than regular repurchasers. For example, when evaluated over a six‐month holding period, the annual “alpha” of infrequent repurchasers was 2.4% greater than that of frequent repurchasers—those that bought back their shares at least nine times a year. And this advantage was even more significant for companies that repurchased just once during the year—a group that recorded an alpha of 5.9%, as compared to 1.5% for monthly repurchasers. Moreover, the results were essentially the same when extended over considerably longer holding periods. For the entire sample of companies that repurchased their shares, the authors reported finding positive and significant alphas of 0.3% per month over windows ranging from three months to three years after the repurchase. But, as reported above, the infrequent repurchasers significantly outperformed frequent repurchasers over all time horizons, with differences in alpha that ranged from a low of 0.3% and to as high as 0.6% per month.     

有效预警上市公司违规的递延所得税异动指标和人工智能模型

2000-2017年,3434家A股上市公司样本中的47.79%至少有一次违规记录,每年平均有17%的公司违规,而监管机构平均需要2.7年查证并通告违规行为。我们用当年数据构建递延所得税异动指标,可有效预判违规,并发现监管机构未能识别这一指标的警示作用,实际激励了违规公司通过操纵递延所得税提高财务指标以规避稽查。进一步构建决策树模型,对违规事件实现样本外精准判别。本文揭示了A股公司大面积违规而稽查过程冗长迟缓这一重要现象,并分析了违规机制,指出了所得税数据在稽查违规中可以发挥的预警作用,为监管者和投资者提供有效预警上市公司违规行为的新指标和方法。