EXPRESS: Mitigating industry contagion effects from financial reporting fraud: A competitive dynamics perspective of non-errant rival firms exploiting product-market opportunities

Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e., industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market opportunities at the expense of errant firms. We apply the competitive dynamics literature to argue that non-errant rivals experience lower contagion effects when they have more available slack to engage in competitive actions. This effect is expected to strengthen when rival firms have previously deployed more resources for R&D and advertising investments or have higher prior market share growth to demonstrate effective deployments of available resources. These arguments are supported for contagion effects from reports of U.S. SEC investigations from 2001 to 2004. We contribute to research and practice by going beyond discussions on corporate governance to evaluations of key competitive attributes that investors assess when reacting to such frauds.

HOW DO THE ECB MEETINGS AFFECT THE STOCK VALUATIONS OF FOUR IBEX35 BANKS?

Purpose: Analyze the data and draw there were any relevant conclusions between the meetings of the central bank and the movements of the banking corporations in the stock market. Methodology: To carry out this study, it was necessary to obtain two extremely important data sets (exact dates of the ECB meetings, stock market valuations of the four banking entities understudy). Both were obtained by searching on specialized websites. Then a comparison of the variations, a correlation table, which will allow us to mathematically affirm whether there is a linear relationship and proportionality between the variations of the banks or not, were analyzed. Main Findings: The results obtained indicate that such influence on the part of the European Central Bank on the financial entities listed on the IBEX35 does not exist, since the variations between bank shares are random and maybe would be better explained by other hypotheses or inputs. Application of Study: This work discards the hypothesis proposed by the student, although it manages to find other interesting relationships between banks because of the correlation analysis carried out in the analysis part of the work. Novelty/Originality: Establish the relationship between the meetings of the central bank and the movements of the banking corporations in the stock market.

Green Investing: Impact of Pro-environmental Preferences on Stock Market Valuations During Turbulent Periods

The study addresses the growing popularity and need of green investing. Green investing have been shown to churn lesser yields and underperform general market portfolios. Rapid growth of green bonds, green funds and green theme indices worldwide indicate towards the growing segment within investment community. The ethical screens lead to crunching of investable universe as a result such funds are expected to lose on diversification benefits. The study attempts to investigate the performance of green and non-green portfolios during the crisis and validate the differential impact of crisis on their demand. It further examines the impact of market cycles on the returns of portfolios. The period is classified into pre-crisis, crisis and post-crisis period. Asset pricing models believed to explain the returns on well diversified market portfolio have been applied on constructed green and non-green portfolios to measure the abnormal return. Green portfolios are noticed to be picking pace and outperforming market after the crisis surpassed. Indian investors are not penalizing companies for their green initiatives and such initiatives are believed to drive demand for the stock.

Sensitivity about inventory leanness

PurposeThis study aims to suggest that firms and stock market investors are more sensitive about inventory leanness when industry information technology (IT) usage is high. First, when industry IT usage is high, a firm's inventory leanness is more responsive to information inputs (cash holding and sales efficiency). Second, when industry IT usage is high, the price-to-earnings ratio (indicative of stock market investors' willingness to pay a premium) is more sensitive to the firm's inventory leanness.Design/methodology/approachThis study highlights the contextual role of industry IT usage during the 1998–2009 lost decade (wherein the steepest falls in manufacturing jobs happened in the USA).FindingsThe results highlight the significant contextual role of industry IT usage. In manufacturing industry sectors with high IT usage, (1) inventory levels of firms are more responsive to information inputs and (2) stock market investors have greater appreciation for inventory leanness.Originality/valueThe lost decade, 1998–2009, was a difficult period for the manufacturing industry. Nonetheless, there was variation in stock market valuations of manufacturing firms, with many firms outperforming others. Stock market investors were sensitive to inventory leanness. Firms that positively impressed stock market investors were strategically positioned in high IT usage industry sectors and prioritized inventory leanness. Further, their inventories were sensitive to information inputs – their inventories were leaner in response to improved sales-efficiency and/or shortage in cash.

Partisan Shocks and Financial Markets: Evidence from Close National Elections

This paper estimates the effect of partisan electoral victories on stock and bond markets. We employ a regression-discontinuity-based event study in a sample of 758 worldwide post-1945 national elections, using existing data on parliamentary elections and newly collected data on presidential elections. Left-wing electoral victories cause significant and substantial short-term decreases in stock market valuations, while the response of sovereign bond markets is mostly muted. Stock market effects are stronger and more persistent in elections in which the left’s proposed economic policy is more radical and in developing economies. (JEL D72, G14, N20, N40, O16, O17)

Patent-Based News Shocks

What do patents tell us about the economic effects of future technological improvements? We identify aggregate and industry level patent-based news shocks by exploiting changes in stock market valuations of firms that obtain patent grants. Our shocks resemble diffusion news, as they do not affect total factor productivity in the short run but induce a strong permanent effect after five years. We find that patent-based news shocks produce positive comovement between consumption, output, investment, and hours. They also generate positive responses in inflation and in the federal funds rate, consistent with standard New Keynesian models.