Reverse Stock Splits in the Biotechnology Industry: An Effectuation Approach

2015 ◽  
Vol 21 (1) ◽  
Author(s):  
Wei Wu ◽  
Robert Couch ◽  
Yulianto Suharto ◽  
Mark J. Ahn
Keyword(s):  
Abnormal Returns ◽  
Biotechnology Industry ◽  
Stock Splits ◽  
Firm Age ◽  
Split Ratio ◽  
Ratio Size ◽  
Reverse Stock Splits ◽  
Biotech Industry ◽  
Reverse Stock Split

Using an effectuation theory lens, we study reverse stock splits in the biotech industry where significant uncertainty makes specific scenarios of success difficult to predict. We conjecture and find that, in contrast to other environments where there is less uncertainty, reverse stock splits in the biotech industry are followed by positive abnormal returns over the subsequent 1- to 12-months. Also consistent with our effectuation-based predictions, we find that these returns are positively related to the reverse split ratio, size, cash holding, and long-term debt, and negatively related to the market-to-book ratio and firm age. We also find that liquidity increases after a reverse stock split. These results suggest that the concept of effectuation theory is better suited to analyzing reverse stock splits in the biotech industry. 

scholarly journals Earnings management and long-term performance: evidence from reverse stock splits

2009 ◽  
Vol 7 (2) ◽  
pp. 420-439
Author(s):  
Michael Gombola ◽  
Amy Yueh-Fang Ho ◽  
Yi-Kai Chen
Keyword(s):  
Earnings Management ◽  
Balance Sheet ◽  
Abnormal Returns ◽  
Stock Splits ◽  
Reverse Stock Splits ◽  
Managerial Optimism ◽  
Reverse Stock Split ◽  
Term Performance

This study investigates earnings management and long-term stock performance surrounding reverse stock splits. It is designed to provide evidence on the role of managerial pessimism and discretionary current accruals. Discretionary current accruals are used to measure earnings management. These discretionary current accruals are measured in our study using the balance sheet approach as well as the cash flow statement approach. We find consistent evidence of negative discretionary current accruals prior to reverse stock splits. Such negative discretionary accruals are consistent with managerial pessimism prior to a reverse stock split. Such pessimism is warranted by the observed negative market reaction to a reverse split announcement and the negative abnormal returns observed after reverse splits. Negative discretionary current accruals are also consistent with smoothing of earnings during difficult and challenging periods for the firm. Our study might provide an alternative to the opportunism explanation. It also provides additional evidence buttressing the role of managerial optimism and pessimism in explaining earnings management.

scholarly journals Normal and reverse stock splits in the V4 countries

2016 ◽  
Vol 13 (4) ◽  
pp. 95-105 ◽  
Author(s):  
Manuela Raisová ◽  
Martin Užik ◽  
Christian M. Hoffmeister
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Stock Splits ◽  
Announcement Date ◽  
Reverse Stock Splits ◽  
Stock Split ◽  
Reverse Stock Split ◽  
A Company

The economic crisis has forced managers of joint stock companies to look for short-term solutions for the sharp changes in stock prices of their companies. Even the companies of the V4 countries are not the exception. The authors have focused on those companies where have been used either reverse stock split or stock split. They analyzed the effects of the reverse stock split or stock splits on the abnormal returns of stocks. In this paper, the authors analyzed a dataset from 1993 until 2015 with 124 reverse stock splits and 184 stock splits in total focused on the stock market in V4. Based on their own research they conclude that when reverse stock splits were used stock returns significantly decreased one day around the announcement date. They conclude that managers of a company might use this instrument to move the stock price back to the optimal trading range outside of the penny stock area. In the case of stock splits, the authors concluded that the use of this tool results in a significant increase in the returns of a stock after the announcement date. However, the results are in contrast to some former studies which found no positive effect on the returns caused by stock splits. The authors conclude that managers of a company might use this instrument to transport information content of future (positive) performance of a company to the traders. Keywords: Vysegrad group countries, normal stock split, reverse stock split, abnormal returns. JEL Classification: G11, G23, G32

CEO Turnover in Reverse Splits

2010 ◽  
Vol 13 (03) ◽  
pp. 403-416 ◽  
Author(s):  
Li-Hsun Wang ◽  
Chu-Hsiung Lin ◽  
Hsien-Ming Chen
Keyword(s):  
Financial Performance ◽  
Abnormal Returns ◽  
Ceo Turnover ◽  
Stock Splits ◽  
Short Term ◽  
Reverse Stock Splits

This study examines the application of CEO turnover on reverse stock splits firms. Using Taiwanese samples, we find that non-CEO turnover firms receive negative long-term abnormal returns, and their financial performances continue to decline following reverse splits. These findings are consistent with prior studies. Contrarily, neither significantly negative long-term abnormal returns nor changes on financial performance were found for CEO turnover firms. This study concludes that applying CEO turnover is suggestive in reverse splits. Additionally, we find that reverse split firms raise debt and concern with their short-term solvency following splits.

scholarly journals Analisis Pengaruh Stock Split Terhadap Harga Saham, Abnormal Return Dan Risiko Sistematik Saham Perusahaan (Studi Pada Perusahaan Yang Terdaftar Di Bei 2016-2018)

2019 ◽  
Vol 4 (1) ◽  
pp. 95
Author(s):  
Nindi Vaulia Puspita ◽  
Kartika Yuliari
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Abnormal Return ◽  
Systematic Risk ◽  
Stock Splits ◽  
Reverse Stock Splits ◽  
Stock Split ◽  
Before And After ◽  
Reverse Stock Split ◽  
Corporate Actions

The purpose of this study is to analyze the effect of stock split on stock price, abnormal return and systematic risk of stock, The sample in this study as many as 82 companies  are doing stock splits in the period 2016-2018 with the requirement that no other corporate actions such as mergers and acquisitions or reverse stock splits. The result indicated there are differences in stock prices and abnormal return before and after the stock split event, and the systematic risk no difference after and before the stock split event. This condition because of the strong internal factors of the company, this is indicated by no effect of systematic risk (beta) on stocks due to unstable market because investors buy stocks in the short term so they are not affected by systematic risk. Penelitian bertujuan untuk melakukan analisis pengaruh stock split terhadap harga saham, abnormal return dan risiko sistematik saham, sampel penelitian terdiri dari  82 perusahaan yang melakukan stock split dalam rentang waktu 2016-2018 dengan persyaratan tidak ada corporate action yang lain seperti merger dan akuisisi ataupun reverse stock split. Hasil penelitian menunjukkan terdapat perbedaan harga saham sebelum dan sesudah peristiwa stock split, adanya perbedaan abnormal return sebelum dan sesudah stock split dan  yang terakhir risiko sistematik menghasilkan tidak adanya perbedaan setelah dan sebelum adanya peristiwa stock split, kondisi ini karena kuatnya factor internal perusahaan, hal ini ditunjukkan dengan tidak adanya pengaruh risiko sistematik (beta) terhadap saham yang disebabkan kondisi pasar yang tidak stabil menyebabkan investor membeli saham dengan tujuan jangka pendek sehingga tidak terpengaruh dengan risiko sistematik.

Do Reverse Stock Splits Benefit Long-term Shareholders?

2012 ◽  
Vol 18 (4) ◽  
pp. 439-449 ◽  
Author(s):  
Jae-Kwang Hwang ◽  
Young Dimkpah ◽  
Alex I. Ogwu
Keyword(s):  
Stock Splits ◽  
Reverse Stock Splits

scholarly journals Existence and Exploitability of Financial Analysts' Informational Leadership

2016 ◽  
Vol 5 (2) ◽  
Author(s):  
Rainer Baule ◽  
Hannes Wilke
Keyword(s):  
Abnormal Returns ◽  
Relevant Information ◽  
Trading Strategies ◽  
Information Share ◽  
Time Period ◽  
The Us ◽  
Information Shares ◽  
Set Up ◽  
The One

This paper bridges two recent studies on the role of analysts to provide new and relevant information to investors. On the one hand, the contribution of analysts to long-term price discovery on the US market is rather low. Considering earnings per share forecasts as the main output of analysts’ reports, their information share amounts to only 4.6% on average. On the other hand, trading strategies set up on these EPS forecasts are quite profitable. Self-financing portfolios yield excess returns of more than 5% over the S&P 100 index for a time period of 36 years, which is persistent after controlling for the well-known risk factors. In this paper, we discuss the link between the low information shares and the high abnormal returns. We argue that information shares of analysts cannot be higher, because otherwise their forecasts would lead to excessively profitable trading strategies which are very unlikely to persist over such a long period of time.

scholarly journals TRADEMARK ACTIVITY AND THE MARKET PERFORMANCE OF U.S. COMMERCIAL BANKS

2012 ◽  
Vol 13 (5) ◽  
pp. 931-950 ◽  
Author(s):  
Carlos González-Pedraz ◽  
Sergio Mayordomo
Keyword(s):  
Commercial Banks ◽  
Negative Impact ◽  
Abnormal Returns ◽  
Market Value ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Cumulative Abnormal Returns ◽  
And Performance ◽  
Positive Effect

This empirical paper analyzes the effect of trademark activity on the market value and performance of US commercial banks from two perspectives. First, a longterm perspective considers the effect of such activity on banks’ Tobin's q. Second, with a short-term perspective, the authors analyze the effect of trademark activity on banks’ abnormal returns. An older portfolio of trademarks diminishes the ratio of market value to firm assets, but this ratio can be improved in the long term by abandoning old trade-marks. Portfolios of trademarks with wide diversification do not help increase Tobin's q. Furthermore, according to an event study, the creation of a trademark has a positive effect on cumulative abnormal returns compared with no event, whereas a cancellation event has a negative impact.

Numerosity: Forward and Reverse Stock Splits

2019 ◽  
Vol 21 (3) ◽  
pp. 323-335
Author(s):  
Jessica West ◽  
Carol Azab ◽  
K. C. Ma ◽  
Michael Bitter
Keyword(s):  
Stock Splits ◽  
Reverse Stock Splits
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