Value investing was first identified by Graham and Dodd in the mid-30's as an effective approach to investing. Under this approach stocks are rated as being cheap or expensive largely based on some valuation multiple such as the stock's price-to-earnings or book-to-market ratio. Numerous studies have found that value investing does perform well across most equity markets but it is also true that over most reasonable time horizons, the majority of value stocks underperform the market. The reason for this is that the poor valuation ratios for many companies are reflective of poor fundamentals that are only worsening. The typical value measures do not provide any insights into those stocks whose performance is likely to mean-revert and those that will continue along their recent downhill path. The hypothesis in this paper is that the value stocks most likely to mean-revert are those that are financially sound. Further, it is proposed that we should be able to gain some insights into the financial strength of the value companies using fundamental accounting data. We apply a Bayesian model averaging approach to a set of fundamental accounting variables to forecast, the probability of each value stock outperforming the market. These probability estimates are then used as the basis for enhancing a value portfolio that has been formed using some valuation multiple. The positive note from our study of the US, UK and Australian equity markets is that it appears that fundamental accounting data can be used to enhance the performance of a value investment strategy. The bad news is that the sources of accounting data that play the greatest role in providing such insights would seem to vary both across time and across markets.
{"title":"The Good and the Bad of Value Investing: Applying a Bayesian Approach to Develop Enhancement Models","authors":"R. Bird, R. Gerlach","doi":"10.2139/ssrn.391686","DOIUrl":"https://doi.org/10.2139/ssrn.391686","url":null,"abstract":"Value investing was first identified by Graham and Dodd in the mid-30's as an effective approach to investing. Under this approach stocks are rated as being cheap or expensive largely based on some valuation multiple such as the stock's price-to-earnings or book-to-market ratio. Numerous studies have found that value investing does perform well across most equity markets but it is also true that over most reasonable time horizons, the majority of value stocks underperform the market. The reason for this is that the poor valuation ratios for many companies are reflective of poor fundamentals that are only worsening. The typical value measures do not provide any insights into those stocks whose performance is likely to mean-revert and those that will continue along their recent downhill path. The hypothesis in this paper is that the value stocks most likely to mean-revert are those that are financially sound. Further, it is proposed that we should be able to gain some insights into the financial strength of the value companies using fundamental accounting data. We apply a Bayesian model averaging approach to a set of fundamental accounting variables to forecast, the probability of each value stock outperforming the market. These probability estimates are then used as the basis for enhancing a value portfolio that has been formed using some valuation multiple. The positive note from our study of the US, UK and Australian equity markets is that it appears that fundamental accounting data can be used to enhance the performance of a value investment strategy. The bad news is that the sources of accounting data that play the greatest role in providing such insights would seem to vary both across time and across markets.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132890942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents a capital asset pricing model in the presence of asymmetric information and transaction costs. The model is a generalized version of Merton's (1987) model and Black's (1974) model. Empirical tests show a negative relation between the expected rate of return and the shadow costs of incomplete information. The results in this paper have the potential to explain the home bias equity in a domestic and an international context.
{"title":"The Effect of Asymmetric Information and Transaction Costs on Asset Pricing: Theory and Test","authors":"M. Bellalah, Sofiane Aboura","doi":"10.2139/ssrn.391682","DOIUrl":"https://doi.org/10.2139/ssrn.391682","url":null,"abstract":"This paper presents a capital asset pricing model in the presence of asymmetric information and transaction costs. The model is a generalized version of Merton's (1987) model and Black's (1974) model. Empirical tests show a negative relation between the expected rate of return and the shadow costs of incomplete information. The results in this paper have the potential to explain the home bias equity in a domestic and an international context.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126956736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Given the lack of evidence in the literature regarding UK short-term contrarian profits and their decomposition, this paper investigates the existence of contrarian profits for the London Stock Exchange (LSE), and decomposes them to sources due to common factors and to firm-specific news, building on the methodology of Jegadeesh and Titman (1995). Furthermore, in view of recent evidence that longer-term contrarian profits in the US are explained by firm characteristics such as size and book-to-market equity, the paper decomposes shorter-term contrarian profits to sources similar to the ones in the Fama and French (1996) three-factor model. For the empirical testing, size-sorted sub-samples that are rebalanced annually are used, and in addition, adjustments for infrequent trading and the Bid-Ask bias are made to the data. The results indicate that contrarian strategies are profitable for UK stocks and more pronounced for extreme market capitalization stocks (smallest - largest); the profits persist even after the sample is adjusted for market frictions, such as infrequent trading and bid-ask bias, and irrespective of whether raw or risk-adjusted returns are used to calculate them. Further tests indicate that the magnitude of the contribution of the delayed reactions to contrarian profits is small, while the magnitude of the contribution of investor overreaction to firm-specific information to profits is far larger (consistent with the findings of Jegadeesh and Titman 1995 for the US).
{"title":"Are Contrarian Investment Strategies Profitable in the London Stock Exchange? Where Do These Profits Come from?","authors":"Antonios Antoniou, E. Galariotis, S. Spyrou","doi":"10.2139/ssrn.391570","DOIUrl":"https://doi.org/10.2139/ssrn.391570","url":null,"abstract":"Given the lack of evidence in the literature regarding UK short-term contrarian profits and their decomposition, this paper investigates the existence of contrarian profits for the London Stock Exchange (LSE), and decomposes them to sources due to common factors and to firm-specific news, building on the methodology of Jegadeesh and Titman (1995). Furthermore, in view of recent evidence that longer-term contrarian profits in the US are explained by firm characteristics such as size and book-to-market equity, the paper decomposes shorter-term contrarian profits to sources similar to the ones in the Fama and French (1996) three-factor model. For the empirical testing, size-sorted sub-samples that are rebalanced annually are used, and in addition, adjustments for infrequent trading and the Bid-Ask bias are made to the data. The results indicate that contrarian strategies are profitable for UK stocks and more pronounced for extreme market capitalization stocks (smallest - largest); the profits persist even after the sample is adjusted for market frictions, such as infrequent trading and bid-ask bias, and irrespective of whether raw or risk-adjusted returns are used to calculate them. Further tests indicate that the magnitude of the contribution of the delayed reactions to contrarian profits is small, while the magnitude of the contribution of investor overreaction to firm-specific information to profits is far larger (consistent with the findings of Jegadeesh and Titman 1995 for the US).","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"119 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133486792","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper models of default prediction conditional on financial statements of Austrian firms are presented. Apart from giving a discussion on the suggested 65 variables the issue of potential problems in developing rating models is raised and possible solutions are reviewed. A unique data set on credit risk analysis for the Austrian market is constructed and used to derive rating models for three different default definitions, i.e. bankruptcy, restructuring, and delay-in-payment. The models are compared to examine whether the models developed on the tighter default criteria, that are closer to the definition proposed by Basel II, do better in predicting these credit loss events than the model estimated on the traditional and more easily observable default criterion bankruptcy. Several traditional methods to compare rating models are used, but also a rigorous statistical test is discussed and applied. All results lead to the same conclusion that not much prediction power is lost if the bankruptcy model is used to predict the credit loss events of rescheduling and delay-in-payment instead of the alternative models specifically derived for these default definitions. In the light of Basel II this is an interesting result. It implies that traditional credit rating models developed by banks by exclusively relying on bankruptcy as default criterion are not automatically outdated but can be equally powerful in predicting the comprising credit loss events provided in the new Basel capital accord as models estimated on these default criteria.
{"title":"Are Credit Scoring Models Sensitive with Respect to Default Definitions? Evidence from the Austrian Market","authors":"E. Hayden","doi":"10.2139/ssrn.407709","DOIUrl":"https://doi.org/10.2139/ssrn.407709","url":null,"abstract":"In this paper models of default prediction conditional on financial statements of Austrian firms are presented. Apart from giving a discussion on the suggested 65 variables the issue of potential problems in developing rating models is raised and possible solutions are reviewed. A unique data set on credit risk analysis for the Austrian market is constructed and used to derive rating models for three different default definitions, i.e. bankruptcy, restructuring, and delay-in-payment. The models are compared to examine whether the models developed on the tighter default criteria, that are closer to the definition proposed by Basel II, do better in predicting these credit loss events than the model estimated on the traditional and more easily observable default criterion bankruptcy. Several traditional methods to compare rating models are used, but also a rigorous statistical test is discussed and applied. All results lead to the same conclusion that not much prediction power is lost if the bankruptcy model is used to predict the credit loss events of rescheduling and delay-in-payment instead of the alternative models specifically derived for these default definitions. In the light of Basel II this is an interesting result. It implies that traditional credit rating models developed by banks by exclusively relying on bankruptcy as default criterion are not automatically outdated but can be equally powerful in predicting the comprising credit loss events provided in the new Basel capital accord as models estimated on these default criteria.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125747828","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper examines the factors which explain the liquidity premium in the Spanish government securitites market. First, we study the degree of liquidity and the relationship to the factors it depends on, observing the differences between two kinds of assets, bills and notes, and between two markets that can be considered as retail market (ETS) and wholesale market (the Bank of Spain's book entry system, MDPA). Our study reveals the conveneince of splitting up the life of bonds into three different stages: Prebenchmark, benchmark and seasoned. Second, we analyse the spreads between yields at which bonds and bills are traded the same day in the ETS and in the MDPA. Liquidity premiums between both markets can be explained by two sorts of variables. There is a set of variables that captures the idiosyncrasy of each issue, mainly the age, and the other set of variables that captures some specific features of the ETS market that may rise to additional liquidity premiums.
{"title":"Liquidity Premiums between Treasury Asset Markets","authors":"A. Díaz, Eliseo Navarro Arribas","doi":"10.2139/ssrn.393466","DOIUrl":"https://doi.org/10.2139/ssrn.393466","url":null,"abstract":"The paper examines the factors which explain the liquidity premium in the Spanish government securitites market. First, we study the degree of liquidity and the relationship to the factors it depends on, observing the differences between two kinds of assets, bills and notes, and between two markets that can be considered as retail market (ETS) and wholesale market (the Bank of Spain's book entry system, MDPA). Our study reveals the conveneince of splitting up the life of bonds into three different stages: Prebenchmark, benchmark and seasoned. Second, we analyse the spreads between yields at which bonds and bills are traded the same day in the ETS and in the MDPA. Liquidity premiums between both markets can be explained by two sorts of variables. There is a set of variables that captures the idiosyncrasy of each issue, mainly the age, and the other set of variables that captures some specific features of the ETS market that may rise to additional liquidity premiums.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126060748","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets.
{"title":"Analysts' Conflict of Interest and Biases in Earnings Forecasts","authors":"L. Chan, Jason Karceski, Josef Lakonishok","doi":"10.2139/ssrn.392004","DOIUrl":"https://doi.org/10.2139/ssrn.392004","url":null,"abstract":"Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130273861","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies market segmentation, information asymmetry and diffusion on the Chinese stock exchanges. Previous studies indicate that the price difference between domestic investors' A shares and foreign investors' B shares are driven by a stochastic trend. In this paper we test the stationarity of the A share price premium, and cointegration between A and B share prices using panel data methods. We use standard Augmented Dickey-Fuller (ADF) unit root tests and likelihood ratio (LR) tests for cointegration for the cross-sectional units or individual firms. Our panel data tests are based on the Fisher (1932) test suggested by Maddala and Wu (1999), i.e. the tests are based on combining the individual p-values from the cross-sectional units or firms. Using panel data, we find that the A share price premium is stationary, and we find cointegration between A and B share prices for most firms, but not for all. A probit model is used to identify the firm characteristics that determine whether A and B share prices cointegrate or not. The results show that cointegration is more likely to be found for firms that have listed their B shares in more recent years, and for firms in the service and manufacturing sectors.
{"title":"Market Segmentation and Information Diffusion in China's Stock Markets: Panel Data Unit Root and Cointegration Tests on a and B Share Prices","authors":"N. Ahlgren, B. Sjöö, Jianhua Zhang","doi":"10.2139/ssrn.391563","DOIUrl":"https://doi.org/10.2139/ssrn.391563","url":null,"abstract":"This paper studies market segmentation, information asymmetry and diffusion on the Chinese stock exchanges. Previous studies indicate that the price difference between domestic investors' A shares and foreign investors' B shares are driven by a stochastic trend. In this paper we test the stationarity of the A share price premium, and cointegration between A and B share prices using panel data methods. We use standard Augmented Dickey-Fuller (ADF) unit root tests and likelihood ratio (LR) tests for cointegration for the cross-sectional units or individual firms. Our panel data tests are based on the Fisher (1932) test suggested by Maddala and Wu (1999), i.e. the tests are based on combining the individual p-values from the cross-sectional units or firms. Using panel data, we find that the A share price premium is stationary, and we find cointegration between A and B share prices for most firms, but not for all. A probit model is used to identify the firm characteristics that determine whether A and B share prices cointegrate or not. The results show that cointegration is more likely to be found for firms that have listed their B shares in more recent years, and for firms in the service and manufacturing sectors.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128129340","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corporate and institutional foreign exchange market participants are sensitive to the effects of volatility on their day-to-day trading activities and so an important question is whether the introduction of the euro had an impact on foreign exchange rate volatility. Rather than compare individual currencies with the Euro we compare the pre 1999 volatility of three synthetic euro exchange rate series with the volatility of the actual euro starting from the 1st of January 1999. Volatility tests are undertaken within a GARCH framework. There is evidence of a statistically significant increase in transatlantic exchange rate volatility following the introduction of the euro. Acknowledgements: We would like to express our thanks to the staff in the School of Finance and Applied Statistics at the ANU, particularly Dr Chris Bilson for his support and guidance.
{"title":"European Currency Volatility after Economic and Monetary Union","authors":"R. Heaney, J. Swieringa","doi":"10.2139/ssrn.407710","DOIUrl":"https://doi.org/10.2139/ssrn.407710","url":null,"abstract":"Corporate and institutional foreign exchange market participants are sensitive to the effects of volatility on their day-to-day trading activities and so an important question is whether the introduction of the euro had an impact on foreign exchange rate volatility. Rather than compare individual currencies with the Euro we compare the pre 1999 volatility of three synthetic euro exchange rate series with the volatility of the actual euro starting from the 1st of January 1999. Volatility tests are undertaken within a GARCH framework. There is evidence of a statistically significant increase in transatlantic exchange rate volatility following the introduction of the euro. Acknowledgements: We would like to express our thanks to the staff in the School of Finance and Applied Statistics at the ANU, particularly Dr Chris Bilson for his support and guidance.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"81 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122667332","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In 1982, the newly elected French government initiated an unprecedented move by undertaking a massive nationalization plan. This plan involved firms which, at the time, played a crucial role in the French economy. The government's move was short-lived, however, as a program leading to the privatization of some of the firms that had been nationalized in 1982 was initiated in 1986. This paper investigates the value that was created (destroyed) during the nationalization period for each of the French firms nationalized in 1982 and re-privatized between 1986 and 1997. This paper also investigates the extent to which the French citizens registered a gain or a loss as a consequence of the government's nationalization/privatization strategy. Our results show that the French government did not destroy value through the nationalization process. They also show that the French government, and thereby the French citizens, did not register any gain from the nationalization process because of the magnitude of both the premiums paid to shareholders of nationalized firms and the underpricing of shares at the time of privatization.
{"title":"The Financial Impact of the French Government's Nationalization/Privatization Strategy","authors":"C. Laurin, Pascal Dumontier","doi":"10.2139/ssrn.393484","DOIUrl":"https://doi.org/10.2139/ssrn.393484","url":null,"abstract":"In 1982, the newly elected French government initiated an unprecedented move by undertaking a massive nationalization plan. This plan involved firms which, at the time, played a crucial role in the French economy. The government's move was short-lived, however, as a program leading to the privatization of some of the firms that had been nationalized in 1982 was initiated in 1986. This paper investigates the value that was created (destroyed) during the nationalization period for each of the French firms nationalized in 1982 and re-privatized between 1986 and 1997. This paper also investigates the extent to which the French citizens registered a gain or a loss as a consequence of the government's nationalization/privatization strategy. Our results show that the French government did not destroy value through the nationalization process. They also show that the French government, and thereby the French citizens, did not register any gain from the nationalization process because of the magnitude of both the premiums paid to shareholders of nationalized firms and the underpricing of shares at the time of privatization.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"98 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124850587","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is an ongoing debate in the literature whether the positive stock price effects to the announcement of a dividend increase or a share repurchase should be explained by the information-signalling hypothesis or the managerial discretion hypothesis of by both of them. We propose a new study where the relevance of the managerial discretion hypothesis in explaining stock market reactions to pay-out announcements could be directly tested. For that purpose we analyse the announcement effects of one-time dividend payments by listed German companies. These dividends were paid in order to realise a tax saving opportunity for the shareholders caused by a revision of the German tax code. As the firms did no have much discretion in timing the disbursement, the event by itself should not have any informational impact. It will be shown that over a period of %B1 3 months around the announcement date the abnormal stock price effect is 3.4 to 4.6 times as high as the mere tax saving effect induced by the one-time dividend payment. Moreover, according to the managerial discretion hypothesis we find the stock price effect to be significantly lower for those companies generating the tax saving without paying out cash to shareholders.
{"title":"Tax Driven One-Time Dividends and the Managerial Discretion Hypothesis - New Evidence from Germany","authors":"C. Kaserer, Stephanie Roos, E. Wenger","doi":"10.2139/ssrn.302127","DOIUrl":"https://doi.org/10.2139/ssrn.302127","url":null,"abstract":"There is an ongoing debate in the literature whether the positive stock price effects to the announcement of a dividend increase or a share repurchase should be explained by the information-signalling hypothesis or the managerial discretion hypothesis of by both of them. We propose a new study where the relevance of the managerial discretion hypothesis in explaining stock market reactions to pay-out announcements could be directly tested. For that purpose we analyse the announcement effects of one-time dividend payments by listed German companies. These dividends were paid in order to realise a tax saving opportunity for the shareholders caused by a revision of the German tax code. As the firms did no have much discretion in timing the disbursement, the event by itself should not have any informational impact. It will be shown that over a period of %B1 3 months around the announcement date the abnormal stock price effect is 3.4 to 4.6 times as high as the mere tax saving effect induced by the one-time dividend payment. Moreover, according to the managerial discretion hypothesis we find the stock price effect to be significantly lower for those companies generating the tax saving without paying out cash to shareholders.","PeriodicalId":183987,"journal":{"name":"EFMA 2003 Helsinki Meetings (Archive)","volume":"65 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116073043","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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