Search results

This study aims to investigate the association between firm valuation and earnings quality in several European countries. Also, it examines if country-level governance and market development are important determinants of firm valuation.

Using a sample of 5,002 non-financial firms in 37 European countries over the years 2004 to 2019, the authors evaluate the research question using regression models.

The authors find a significant positive relationship between firm valuation and a multi-factor earnings quality measure based on four components (accruals, cash flows, operating efficiency and exclusions). The authors further show that stock market development is also a driver of firm value, while country-level governance is significant only in the case of a firm fixed effect model with time effects. The results are robust to alternative model specifications that control for endogeneity, sample heterogeneity and alternative proxies for firm valuation.

Policy makers and market participants could benefit from the findings, by exploiting the advantages of earnings quality in terms of high-ranking stocks whose earnings are backed by cash flows and other sustainable sources.

To the best of the authors’ knowledge, this study is the first to empirically test the relationship between earnings quality and firm value in the European setting during a period that incorporates the adoption of IFRS. This is quite interesting as it permits cross-border comparability in terms of financial reporting and provides deeper and more representative evidence.

The purpose of this paper is to assess the reaction of European stock markets after the UK's EU membership referendum (“Brexit”) on June 23, 2016.

The analysis focuses on asector level by using non-aggregate stock indices across EU-28, the UK and several country subsamples. An event study is performed in order to measure cumulative abnormal returns during the post-referendum announcement period.

The results indicate an unexpected small number of affected sectors across the country samples. A negative effect is observed in the financial sector across both the EU-28 and eurozone samples, whereas basic materials and health care sectors are influenced positively across the European region. Most of the sectors in the UK display a long-lasting positive effect, while the close trade relationships between the UK and selected European countries seem to partly constitute a driving force of sectors' abnormal stock returns after the referendum.

The results are useful for global investors, traders and portfolio managers in terms of whether short-term gains from investment choices across sectors can be achieved during periods of increased political uncertainty and whether investors distinguished between sectors.

This paper extends the Brexit literature by using, for the first time, European non-aggregate stock indices. It also contributes to the sector-specific contagion studies by identifying which sectors with similar and/or different industrial composition are more prone to political uncertainty caused by the Brexit vote.

The supervisory stress test evaluates the capital adequacy and profit-generation capacity of systemic banking institutions under baseline and adverse macroeconomic scenarios. This study aims to assess the financial and informational role of European stress tests and substantiate the impact of their disclosures by examining the EU-wide 2018 stress test vis-à-vis the EU-wide 2021 stress test in terms of how and to what extent the stock prices of the stress-tested banks have been affected.

This study applies standard event study methodologies to evaluate the reactions of market participants during the EU-wide 2018 and 2021 stress test exercises. We examine several “large” events in both the exercises for a selected sample of European banks.

The results of our event study analysis show that the EU-wide 2018 and 2021 stress tests come subsequent to considerable abnormal price movements. The announcement of stress test results triggered tangible investor reactions, indicating the informational value of stress tests in reducing bank opacity. This supervisory “toolkit” is considered extremely important, as it provides meaningful insights to the supervisors of the banking institutions and the market stakeholders by improving the transparency of the financial sector, allowing them to segregate banks more effectively.

This study constitutes one of the earliest attempts to shed light on the financial and information role of the European supervisory stress tests by comparing the EU-wide 2018 and the EU-wide 2021 stress test exercises. Moreover, it provides concrete empirical evidence and qualitative analysis to explore certain aspects of the European and US stress tests.