This study documents that high book‐to‐market (value) and low book‐to‐market (glamour) stock prices react asymmetrically to both common and firm‐specific information…
Abstract
This study documents that high book‐to‐market (value) and low book‐to‐market (glamour) stock prices react asymmetrically to both common and firm‐specific information. Specifically, we find that value stock prices exhibit a considerably slow adjustment to both common and firm‐specific information relative to glamour stocks. The results show that this pattern of diferential price adjustment between value and glamour stocks is mainly driven by the high arbitrage risk borne by value stocks. The evidence is consistent with the arbitrage risk hypothesis, predicting that idiosyncratic risk, a major impediment to arbitrage activity, amplifies the informational loss of value stocks as a result of arbitrageurs’ (informed investors) reduced participation in value stocks because of their inability to fully hedge idiosyncratic risk.
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John A. Doukas and Wenjia Zhang
– The purpose of this paper is to test whether bank mergers are driven by equity overvaluation and management compensation incentives.
Abstract
Purpose
The purpose of this paper is to test whether bank mergers are driven by equity overvaluation and management compensation incentives.
Design/methodology/approach
To test whether equity mispricing drive bank mergers, the authors employ two alternative price-to-residual income valuation (P/V) measures for bidders and targets while the authors control for their growth prospects with the price-to-book (P/B) (two years before) ratio. The intrinsic value (V) is estimated using the three-period forecast horizon residual income model of Ohlson (1995) and perpetual residual income model that does not rely on analysts’ forecasts of future earnings prospects. The latter measure allows the authors to estimate V for a much larger sample of banks. The empirical analysis is supplemented with a standard event analysis and assessment of the long-term performance of bank mergers subsequent to the announcement date.
Findings
The evidence shows that bidders are overvalued relative to their targets, especially in equity offer deals. The authors also find that highly valued bidders: are more likely to use stock than cash; are willing to pay more relative to the target market price; are more likely to acquire private than public targets; earn lower announcement-period returns; fail to create synergy gains; experience long-term underperformance; and reward their top managers of with large compensation increases subsequent to mergers.
Originality/value
This study provides results consistent with the view that behavioral and managerial incentives play an important role in motivating bank mergers.
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John A. Doukas and Wenjia Zhang
This study investigates the implications of the cumulative prospect theory in the context of US bank acquisitions, with particular emphasis on its probability weighting component…
Abstract
Purpose
This study investigates the implications of the cumulative prospect theory in the context of US bank acquisitions, with particular emphasis on its probability weighting component. Specifically, we examine whether gambling attitudes matter in US bank takeover decisions. The evidence demonstrates that offer price premiums and target announcement returns are much higher in bank takeover transactions involving targets with gambling (lottery) features (high skewness, high volatility, and low price). Overall, the results indicate that banking acquisitions are influenced by gambling attitudes.
Design/methodology/approach
To measure idiosyncratic skewness, we follow Harvey and Siddique (2000) and Kumar (2009) and decompose total skewness into its idiosyncratic and systematic components.
Findings
The evidence demonstrates that offer price premiums and target announcement returns are much higher in bank takeover transactions involving targets with gambling (lottery) features (high skewness, high volatility, and low price). In addition, we find that synergies and bidder announcement returns are lower in lottery‐type acquisitions. The patterns we document are stronger when bidding banks are bigger, target banks are smaller, investor sentiment is above the median, and the Chicago Fed National Activity Index is negative.
Originality/value
This is an original piece of work in the field of banking.
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Haris Doukas, Charikleia Karakosta, Alexandros Flamos, Maria Flouri and John Psarras
The European Union (EU) energy supply environment is changing significantly and in a dynamic way, establishing the issue of safe energy imports as main priority. Greece relies…
Abstract
Purpose
The European Union (EU) energy supply environment is changing significantly and in a dynamic way, establishing the issue of safe energy imports as main priority. Greece relies heavily on energy imports. Furthermore, Greece aims to be elevated into an energy cross road for the energy supply to the EU. In this respect, the aim of this paper is the investigation of the suitability of graph theory concepts on energy supply networks and its application to represent energy corridors to Greece.
Design/methodology/approach
Supporting frameworks to represent and assess the vulnerability of the corridors satisfying the Greek demand in oil and gas are considered a crucial issue and are presented in this paper, based on the graph theory approach. In addition, a pilot application of the shortest path algorithm and the maximum flow at minimum risk algorithm for the oil and gas corridors to Greece is presented and discussed.
Findings
This paper introduces the application of graph theory to energy policy analysis. Indeed, the pilot application in oil and gas supply corridors to Greece, although quite simplified, has indicated the applicability of graph theory concepts in such problems and is considered a step forward of the existing studies, supporting the design efforts towards the development of a more reliable energy supply system.
Originality/value
To the best of the authors' knowledge, graph theory's application to energy corridors is not available in the international literature. In this respect, the added value of the paper is the provision of a sufficient decision support framework for the representation and assessment of the energy corridors' risk of energy availability, through the application of graph theory.
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Doina C. Chichernea, Anthony D. Holder and Jie (Diana) Wei
The purpose of this paper is to investigate the connection between the accrual quality and the growth/value characteristics (and their return premia) at firm level.
Abstract
Purpose
The purpose of this paper is to investigate the connection between the accrual quality and the growth/value characteristics (and their return premia) at firm level.
Design/methodology/approach
The paper employs a battery of univariate and multivariate cross‐sectional tests. Fama‐MacBeth regressions with main effects and interaction effects are used to identify the relation between accrual quality, book‐to‐market and returns. The analysis is conducted on the overall sample, as well as after conditioning on up and down markets.
Findings
Value (growth) stocks are more likely to be associated with high (low) accrual quality. Value stocks earn higher returns mainly in down markets, while poor accrual quality firms have significantly higher returns during up markets, but significantly lower returns during down markets. There is a significant interaction effect between accrual quality and the value premium, which only exhibits in the down markets (i.e. stocks with poor accrual quality earn a higher value premium in down markets than stocks with good accrual quality).
Originality/value
Results in this paper help disentangle between various explanations proposed for the accrual quality premium and the value premium. These findings are consistent with the idea that the same underlying risk factor generating the value premium also generates the cross‐sectional variation in accrual quality responsible for the accrual quality premium. From the corporate managers' perspective, the results imply that value firms can mitigate their higher costs of capital by providing high quality of accounting information. From an analyst's perspective, the study suggests that considering both accrual quality and growth characteristics can help make better portfolio allocation decisions than when these are considered separately.
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Anastasios G. Malliaris and Ramaprasad Bhar
The equity premium of the S&P 500 index is explained in this paper by several variables that can be grouped into fundamental, behavioral, and macroeconomic factors. We hypothesize…
Abstract
The equity premium of the S&P 500 index is explained in this paper by several variables that can be grouped into fundamental, behavioral, and macroeconomic factors. We hypothesize that the statistical significance of these variables changes across economic regimes. The three regimes we consider are the low‐volatility, medium‐volatility, and high‐volatility regimes in contrast to previous studies that do not differentiate across economic regimes. By using the three‐state Markov switching regime econometric methodology, we confirm that the statistical significance of the independent variables representing fundamentals, macroeconomic conditions, and a behavioral variable changes across economic regimes. Our findings offer an improved understanding of what moves the equity premium across economic regimes than what we can learn from single‐equation estimation. Our results also confirm the significance of momentum as a behavioral variable across all economic regimes
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Alexandra G. Papadopoulou, Nawal Al Hosany, Charikleia Karakosta and John Psarras
The aim of this paper is to analyse the state of play on energy efficiency with regards to policy, legislation and technological issues in the European Union (EU) and the Gulf…
Abstract
Purpose
The aim of this paper is to analyse the state of play on energy efficiency with regards to policy, legislation and technological issues in the European Union (EU) and the Gulf Cooperation Council (GCC) countries. Moreover, specific collaboration proposals between the two regions, with respect to the aforementioned, are elaborated on.
Design/methodology/approach
The approach of this paper utilizes and integrates the input from a large number of experts through excerpts from extensive international literature, dedicated meetings, bilateral interviews with experts and questionnaires regarding specific proposals for further collaboration.
Findings
Collaboration on energy efficiency between the two regions focuses mainly on three directions: policy, technologies and research. Specific collaboration proposals identified relate among others to the establishment of energy agencies and synergies at the policy level, building retrofitting technologies, labels and standards especially for air conditioning and exchange of know‐how on demand side management and third party financing.
Originality/value
Information on the state of play of energy efficiency in the GCC is, for the most part, scattered and fragmented. This paper is the first integrated analysis on the GCC status. Moreover, this paper provides solid collaboration modules between the EU and GCC, through an active participation of experts from both sides.