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Do Investors Mistake a Good Company for a Good Investment?
Abstract
Do investors confuse the quality of a firm with its attractiveness as an investment? If so, shares of well-run companies will be bid up too high and subsequently earn negative abnormal returns. Our analysis of Fortune magazine’s annual survey of "America’s Most Admired Companies" for 1983-96 finds the opposite. A portfolio of the most admired decile of firms earns an abnormal return of 3.2 percent in the year after the survey is published and 8.3 percent over three years. The least admired decile of firms earns a negative abnormal return of 8.6 percent in the nine months through the end of the year, more than half of which is reversed in the first quarter of the following year. The magnitude of these abnormal returns and their persistence over five years suggest that well admired firms are not overpriced. The timing of returns to least admired firms provides evidence of window dressing.
... As stated above, research has traditionally focused on the effects of corporate reputation on business financial performance. Antunovich and Laster (1999) evaluate the stock abnormal returns and their persistancy over five years based on the list of "America's Most Admired Companies" published annually by Fortune magazine for the period of 1982-1995. A portfolio of the most admired decile of firms earns an abnormal return while the least admired decile of firms earns a negative abnormal return. ...
... Although the relationship between corporate reputation and business performance has been documented extensively for developed countries, surveys on developing countries is not satisfying enough. Studies on developed nations demonstrate that a strong corporate reputation, has both operational and financial value (McGuire et al,1990;Antunovich and Laster, 1999;Dunbar and Schwalbach,2000;Roberts and Dowling,2002;Brammer et al,2006;Anderson and Smith,2006;Walter,2006;Wang and Smith,2008;Dube,2009;Kamiya and Schmit,2010;Gillet and et al,2010). It helps a company attain stronger earnings and sustain profitable growth. ...
... However, it is impossible to make strong inferences that nonreputable firms business performance is better than the well-reputed firms. Antunovich and Laster (1999) explain the reasons for the lower performance of the most admired companies by behavioral biases. According to this view, irrational behavior of people or investors lead to biased investment decisions. ...
Identifying the relationship between corporate reputation and business performance is important for an economy. As corporate reputation becomes critical, then firms have to give more emphasis on sound risk management practices and corporate credibility. Most research suggest that good or strong corporate reputation have a positive impact on firm financial performance in developed markets. However, empirical surveys in an emerging economy context by using different financial measures produce controversial results. This study analyzes the financial performance of reputable Turkish firms comparatively by nonreputable firms registered in Turkish Stock Exchange Market (BIST 30) over the period 2008 to 2012. The results indicate that there isn't enough evidence for firms with high reputation exhibit greater performance than nonreputable firms. The question of whether good corporate reputation increases firm performance in emerging markets like Turkey is not clear enough.
... The inherent limitations of these survey-based methods to capture corporate reputation, such as subjectivity, financial halo effect and lack of comprehensiveness (Brown & Perry, 1994;Fryxell & Wang, 1994), have finally paved the way of measuring corporate reputation by quantitative techniques. Antunovich and Laster (1998) discovered that the companies portraying high market capitalisation earn better reputation ratings on the Fortune's most admired companies list; hence, large cap firms have more superior corporate reputation (Antunovich & Laster, 1998;Shefrin & Statman, 1994, 1995. Previous findings ravel market capitalisation as a crucial determinant of corporate reputation (Mcguire, Schneeweis, & Branch, 1990;Mcguire, Sundgren, & Schneeweis, 1988;Nanda, Schneeweis, & Eneroth, 1996;Shefrin & Statman, 1994, 1995. ...
... The inherent limitations of these survey-based methods to capture corporate reputation, such as subjectivity, financial halo effect and lack of comprehensiveness (Brown & Perry, 1994;Fryxell & Wang, 1994), have finally paved the way of measuring corporate reputation by quantitative techniques. Antunovich and Laster (1998) discovered that the companies portraying high market capitalisation earn better reputation ratings on the Fortune's most admired companies list; hence, large cap firms have more superior corporate reputation (Antunovich & Laster, 1998;Shefrin & Statman, 1994, 1995. Previous findings ravel market capitalisation as a crucial determinant of corporate reputation (Mcguire, Schneeweis, & Branch, 1990;Mcguire, Sundgren, & Schneeweis, 1988;Nanda, Schneeweis, & Eneroth, 1996;Shefrin & Statman, 1994, 1995. ...
... The aim of the study is to examine the impact of expenditure made for R&D initiatives on corporate reputation in the Indian context; hence, corporate reputation is taken as a dependent variable, which is measured through market capitalisation as McGuire et al. (1988McGuire et al. ( , 1990, Shefrin andStatman, (1994, 1995), Nanda et al. (1996), Antunovich and Laster (1998) concluded that the companies portraying high market capitalisation have more superior corporate reputation. The value of market capitalisation in million ` is extracted from ACE Equity database. ...
Reputation has been widely accepted as a surreptitious resource which is imperative for organisations to imbibe. Despite its recognition as a clandestine to success, its formation is arduous. It takes lot of effort on the part of corporate managers to identify and indulge into reputation-building activities. Several researchers have found that good corporate governance, socially responsible acts and financial performance lead to good reputation, but the role of research and development (R&D) activities in enhancing firm reputation has garnered less attention till date. The current study is novel as it examines the relevance of expenditure made on R&D activities in an emerging economy like India, where hardly any study has directly deciphered the relation between R&D activities and corporate reputation. The study analyses the impact of R&D activities undertaken by top 500 Indian companies on their reputation which is measured by market capitalisation. The results of multivariate regression analysis of cross-sectional data reveal that the amount spent on R&D activities can be viewed as an investment as it generates a significant positive impact on firm reputation. The findings suggest that stakeholders view R&D-intensive firms favourably.
... There is evidence regarding the value-relevance of corporate reputation: Fortune reports that a 1988 investment in its ten most admired companies would have grown to nearly three times as much by 1998 as would have a comparable investment in the Standard and Poor's 500. Antunovich and Laster (1999) ®nd that a portfolio of the top decile of Fortune's most-admired ®rms earns an abnormal return of 3.2 per cent in the year after the survey is published and 8.3 per cent over three years. ...
... However, their empirical results provide little support for this hypothesis. Antunovich and Laster (1999) sort ®rms into seven portfolios based upon their annual Fortune reputation measure and form stock portfolios in order to determine whether abnormal returns are associated with the rankings. They ®nd that the mostadmired decile signi®cantly outperforms the least-admired decile for up to ®ve years after the survey and conclude that their ®ndings are an example of investors underreacting to publicly available information. ...
... We employ the Fortune`America's most admired corporations' summary reputation measure, thereby investigating a broader de®nition of reputation than the speci®c aspect studied by Ittner and Larcker (1998). By applying a variation of the model developed by Brown and Perry (1994), we remove the`halo eect' of ®nancial performance and isolate the other in¯uences upon the Fortune rankings in order to extend the research of McGuire, Sundgren and Schneeweis (1988), McGuire, Schneeweis and Branch (1990), Statman (1995, 1998) and Antunovich and Laster (1999). ...
We provide evidence that corporate reputation has value relevance, as measured by its ability to explain the firm's market value of equity at the end of the fiscal period. Corporate reputation is assessed using a summary measure from the Fortune survey of `America's most admired companies.' The Fortune measure serves as a proxy for intangible assets, such as internally generated goodwill, customer service, and intellectual capital. We demonstrate that this summary measure of non-financial information adds to market value, even after controlling for the financial performance `halo' effects on the Fortune ratings.Corporate Reputation Review (2000) 3, 31-42; doi:10.1057/palgrave.crr.1540097
... Notable studies find that the stocks of the most admired firms, as identified by Fortune's survey, outperform those of the least admired (Antunovich et al., 2000; Filbeck et al., 1997) and/or market indices (Filbeck et al., 1997; Vergin and Qoronfleh, 1998). Chung et al. (2003), on the other hand, find little evidence that highly rated firms outperform the less admired on a risk-adjusted basis. ...
... It is important to allow for firm characteristics when examining the performance of the Best Corporate Citizens, since highly admired firms were found typically to be large, glamour stocks. As Antunovich and Laster (2000) point out, the Fama-French (1992) study and associated work has suggested that such firms are likely on average to perform poorly. Thus, we wish to examine the impact of firm characteristics on the profitability of the various one-year holding strategies described above. ...
... Firms that are regarded as good corporate citizens are almost invariably large firms with high price-to-book ratios – traits that typically imply poor stock returns. Our results are thus consistent with the findings of Antunovich and Laster (2000). Finally, we re-examine the stock price performance of the top 100 firms after filtering out those firms that are also constituents of the S&P 500. ...
We consider the stock performance of America's 100 Best Corporate Citizens following the annual survey by Business Ethics. We examine both possible short-term announcement effects around the time of the survey's publication, and whether longer-term returns are higher for firms that are listed as good citizens. We find some evidence of a positive market reaction to a firm's presence in the Top 100 firms that are made public, and that holders of the stock of such firms earn small abnormal returns during an announcement window. Over the year following the announcement, companies in the Top 100 yield negative abnormal returns of around 3%. However, such companies tend to be large and with stocks exhibiting a growth style, which existing studies suggest will tend to perform poorly. Once we allow for these firm characteristics, the poor performance of the highly rated firms declines. We also find companies that are newly listed as good citizens and companies in the Top 100 but outside the S&P 500 can provide considerable positive abnormal returns to investors, even after allowing for their market capitalization, price-to-book ratios, and sectoral classification.
... This is probably because the financial analysts mistake the stocks of good companies for good stocks. However, the previous discussion has also shown that the study [8] provides the opposite evidence. To study whether cognitive biases are occurred in the Taiwan stock market, the correlation of the firm characteristics between good stocks and the stocks of good companies is firstly studied. ...
... In this study, the value of long-term investment (VLTI) of each company survey by the Common Wealth Magazine is used as a proxy for a good stock. Similar methodology has been reported in several studies [6, 8]. The regression results shown inTable 3 imply that the good stocks have the same characteristics as the stocks of good companies. ...
... Although the previous results have shown that financial experts mistake the stocks of good companies for the good stocks, sample firms (including good companies and good stocks) do have higher average next-year buy-and-hold return than the matching firms. This evidence is consistent with the finding [8]. Even the results show that the stocks of good companies are mistaken for the good stocks, but the stocks returns for the good companies or stocks are still higher than the matching firms. ...
It has been shown that the individual or institutional investors rely on the information provided by the financial analysts. A good stock recommended by financial experts is expected to make profit to the investors. However, due to the cognitive biases, the financial analysts or investors are probably confused in the firm characteristics between the good stocks and the stocks of good companies. Good companies are normally inferred to the company that have good managing and operating systems, however, it is usually though to have good returns as good stocks. The future earning forecasts of these good companies may be thus overestimated as compared with the others. Such cognitive biases probably results in improper investment and investment loss. In this study, the reputation survey results for the companies in Taiwan and the corresponding financial data are used to verify the proposed cognitive biases hypothesis. The empirical evidence in this study shows that financial analysts mistake stocks of good companies for good stocks. However, it is also shown that the average one-year buy-and-hold return of these sample firms (including good companies and good stocks) is still higher than that of the chosen matching firms.
... This paper addresses the following research questions: When a security did not have the return and volume data at a specific date (mainly due to non-trading), the return and volume were treated as zero at the date in order to avoid the survivorship bias (Antunovich and Laster (1998)). If a security was excluded due to mergers, bankruptcy, and so on, the return and volume were treated as zero from there on for the same reason. ...
... When a particular stock was delisted due to bankruptcy or mergers, the monthly returns of that security from the delisting date was treated as zero to avoid the survivorship bias (Antunovich and Laster (1998)). ...
Acknowledgements: We thank the Eric Sprott School of Business for a very conducive research environment and Roland Thomas, Allan Riding, and Max Pierce for very insightful comments.
... Several papers have investigated the relationship between a firm's degree of CSR and its reputation. For example, Antunovich and Laster (2000) employ data for the 1983-1996 period from the US survey conducted each year by Fortune magazine in producing its list of "America's Most Admired Companies." They find that the stocks of the most-admired firms yield positive abnormal returns of 3.2% in the following year and 8.3% over the following three years. ...
... In contrast to the findings of Antunovich and Laster (2000) and Filbeck and Preece (2003), but consistent with those of Bauer et al. (2002), we find that the 1-year returns are all negative, except for those of firms with zero scores on all measures. The predominance of negative returns arises from the fact that world equity markets fared badly at that time (July 2002-June 2003. ...
This study examines the relationship between corporate social performance and stock returns in the UK. Using a set of disaggregated social performance indicators for environment, employment and community activities, we are able more closely to evaluate the interactions between social and financial performance than would be the case for an aggregate measure. While scores on a composite social performance indicator are negatively related to stock returns, we find that the poor financial reward offered by such firms is attributable to their good social performance on the environment and, to a lesser extent, the community aspects. Interestingly, we find that considerable abnormal returns are available from holding a portfolio of the socially least desirable stocks. These relationships between social and financial performance can be in large part rationalized by multi-factor models for explaining the cross-sectional variation in returns, but not by industry effects.
... The representativeness heuristic is a cognitive bias (DeBondt and Thaler, 1995), which influences investment decisions, and hence stock prices. Investor in the stock market gives more weight to noticeable information and attributes this information to company's success or failure while ignoring other relevant factors which leads to overreaction behavior (Antunovich and Laster, 1998). According to Kaestner (2006) in the stock market investors' investment decisions are affected by representativeness heuristic in two different ways. ...
Purpose
The purpose of this paper is to investigate the effect of heuristic biases, namely, availability bias and representativeness bias on investors’ investment decisions in the Pakistan stock exchange, as well as the moderating role of long-term orientation.
Design/methodology/approach
Using a structured questionnaire, a total of 374 responses have been collected from individual investors trading in PSX. The relationship was tested by applying the partial least square structural equation model using SmartPLS 3.2.2. Further, Henseler and Chin’s (2010) product indicator approach for moderation analysis was applied to the data set.
Findings
The results revealed that availability bias and representativeness bias have a significant and positive influence on the investment decisions of investors. Furthermore, a significant moderating effect of long term orientation on the effect of representativeness bias on investment decision is observed. This suggests that investors’ long term orientation weaken the effect of representativeness bias on investment decision. However, no significant moderating effect was observed for availability bias.
Originality/value
The paper provides novel insights on the role of heuristic-driven biases on the investment decisions of individual investors in the stock market. Particularly, it enhanced the understanding of behavioral aspects of investment decision-making in an emerging market.
... Böylelikle o güne ait getiri oranı sıfır olarak çalışmaya dâhil edilerek hayatta kalma sapmasından korunmuştur. (Antunovich ve Laster, 1998) Duyuruların borsa kapanış saatinden sonra geldiği durumlarda ise duyuruyu izleyen ilk iş günü olay günü olarak seçilmiştir. ...
Sermaye piyasalarında gözlemlenmekte olan bir anomali olarak endeks etkisi, bir hisse senedinin kote olduğu borsada bulunan bir endekse dâhil olması ya da endeksten çıkarılmasının getiri oranları üzerinde istatistiksel olarak anlamlı bir etkide bulunmasıdır. Bu çalışmada, hisse senetlerinin BİST 30, BİST 50, BİST 100 ve BİST Temettü endekslerine dâhil edilmelerinin ve endekslerden çıkarılmalarının getiri oranları üzerindeki etkisi incelenmektedir. Vaka analizi yöntemi ile yapılan analizde hem endeks değişimlerine ilişkin duyurular hem de endeksin değişimi olay olarak ele alınmıştır. Elde edilen bulgular genel olarak endeksten çıkış duyuru ve olayının hisse senedi getiri oranları üzerinde negatif, endekse giriş duyuru ve olayının ise pozitif etkiye sahip olduğu yönündedir. Buna göre Borsa İstanbul’da endeks etkisinin var olduğu ve bu etkiyi açıklayan fiyat baskısı hipotezinin geçerli olduğu yönünde bulgulara ulaşılmıştır.
... Such companies are expected to perform far better in the near future as they are ephemeral to the market risk, pay more dividends, and guarantee safety and liquidity of funds with a good return. Antunovich and Laster (1998) discovered that the companies portraying high market capitalisation earn better reputation ratings on the Fortune's Most Admired Companies list; hence, large cap firms have more superior corporate reputation (Shefrin & Statman, 1994, 1995. Previous findings have revealed that market capitalisation is a crucial determinant of corporate reputation (Mcguire, Schneeweis, & Branch, 1990;Mcguire, Sundgren, & Schneeweis, 1988;Nanda, Schneeweis, & Eneroth, 1996;Shefrin & Statman, 1994, 1995. ...
Drawing inference from signalling theory, the study attempts to examine the relation between corporate governance and corporate reputation in the Indian context. There is hardly any study directly deciphering the impact of board attributes (like size and ownership pattern) on corporate reputation (taking market capitalisation as proxy) in India. Based on a sample of 403 Indian companies listed on the Bombay Stock Exchange (BSE), the results of panel regression indicate that board size and ownership pattern influence the assessment of a company’s reputation, which is in line with the findings of previous research on this issue in developed nations. It is also found that firms who allow access to institutional investors and those with larger boards exhibit better reputation. Overall, the findings of the current study support the proposition that board characteristics influence the formation of firm reputation by the business community. The study bears significant implications for corporate managers that along with improving financial performance, social performance and media visibility, they should give significant weightage to good governance and management quality (reflected through board attributes) to enhance firm reputation and gain competitive advantage over others.
... Fombrum, 1996;Brown, 1998;Roberts &Dowling, 2002. Antunovich andLaster (1998) contend that the Fortune magazine reputation ratings are directly related to a firm's future equity performance in U.S. Their study showed that the most admired firms in the U.S. achieve high equity return performance after corporate reputation publication while the less admired firms generally underperform. ...
Despite abundant literature on strategic orientations, little has been done regarding qualitative studies that investigate on the nature of the relationships between strategic orientations (market orientation, entrepreneurial orientation, learning orientation and technology orientation) and their linkage with business performance in a family firm. Based on Hakala's (2011) framework for organizing the different approaches to analyze multiple strategic orientations studies, using the resource-based view (RBV) and contingency theory (CT) as theoretical framework, this research presents an exploratory case study that intends to advance the comprehension on how enterprises set a competitive strategy; how top management contributes to set up this competitive strategy and how a firm relates strategic orientations in order to enhance its performance, with an emphasis on technology orientation. A discussion of the findings and some possible future research, as well as conclusions and managerial implications are provided.
... Fombrum, 1996;Brown, 1998;Roberts &Dowling, 2002. Antunovich andLaster (1998) contend that the Fortune magazine reputation ratings are directly related to a firm's future equity performance in U.S. Their study showed that the most admired firms in the U.S. achieve high equity return performance after corporate reputation publication while the less admired firms generally underperform. ...
The goal of this article is to introduce corporate social responsibility as a potential moderator in the relationship between corporate reputation and financial performance. This article also asks the question whether Wal-Mart can be perceived as a social enterprise based on the public's perception of the retail giant's reputation and their socially responsible behaviors (or lack thereof).
... Those companies were chosen by a group of business observers using measures of perceived financial superiority. Antunovich and Laster (1998), using Fortune's survey of America's Most Admired Companies, find that the most-admired decile of firms outperforms the least-admired decile during the period 1982-1995. Antunovich, Laster and Mitnick (2000) find that the most-admired firms, using Fortune's survey, outperformthe market (the least-admired firms underperformed the market) during the period 1983-1995. ...
... than a poorly run company. Yet, this is not a simple matter, as the investor must determine what the well-run companies are and whether they are price appropriately to provide an above-average return on investment. Damodaran' (2003) research considers different dimensions of excellence such as financial results and corporate social responsibility.Antunovich and Laster (1999)examine the challenge that investors face in selecting investments that have high brand awareness, but which may or may not be good investments. They evaluate the relationship between corporate reputation (based on Fortune's Most Admired List) and investment attractiveness. They answer the question whether investing in highreputation com ...
Brand associations affect image and one source of brand association is a company’s reputation. While the relationship between a positive corporate reputation and operational performance is intuitively appealing, there has been relatively little empirical research. This study, using a comprehensive approach, seeks to empirically test the relationship and thereby determine whether firms with a positive brand image, that is those with a positive reputation, experience an economic benefit. Findings are that these firms are associated with a significant market value premium, superior financial performance, and lower cost of capital. Given these findings, marketing managers would do well to strive to build and maintain a positive reputation.
... Fama andFrench (1992, 1993) analyze firm size and market-to-book ratios. Sheffrin and Statman (1995) and Antunovich and Laster (1998) analyze admired ranks. sales growth. ...
In this paper we compare the investment decisions of groups (stock clubs) and individuals. Both individuals and clubs are more likely to purchase stocks that are associated with good reasons (e.g., a company that is featured on a list of most admired companies). However, stock clubs favor such stocks more than individuals despite the fact that such reasons do not improve performance. We describe why social dynamics may make good reasons more important for groups than individuals.
... should have lower average returns, however initial empirical evidence presented Antunovich and Laster (1998) is inconsistent with such a prediction. ...
Asset pricing theory has traditionally made predictions about risk and return, but has been silent on the actual process of investment. Today most investors delegate major investment decisions to financial professionals. This suggests that the instructions given by investors to their delegated agents and the compensation of those agents might be important determinants of capital market equilibrium. In the extreme when all investment decisions are delegated, the preferences and beliefs of individuals would be completely superseded by the objective functions of agent/managers. A provocative illustration of the difference between direct and delegated investing is provided based on active asset management relative to a benchmark index, a common objective function in practice. With the growing preponderance of delegated investing, future asset pricing theory will not only have to describe risk and return but, to be complete, must also be able to explain the observed objective functions used by professional managers.
... In addition, we examine the extent to which the abnormal returns to reputation can be attributed to industry effects. In a more formal analysis (Antunovich and Laster 1999), we find a roughly even split between industry-and firm-specific components. In other words, industries whose firms on average have high Fortune ratings are found to outperform industries with low ratings. ...
The relationship between corporate reputation and investment results is the subject of ongoing debate. Some argue that high-quality firms ultimately provide superior stock price performance; others counter that stock prices already reflect these firms ’ prospects for growth and profitability. This study advances the debate by providing fresh evidence that investing in high-quality firms yields above-average returns and that these superior returns continue for up to five years. Individuals and institutions investing in the stock market often prefer to buy shares of high-quality, or “blue-chip, ” companies. Indeed, some asset managers advocate a policy of investing exclusively in stocks of leading firms. Such strategies raise an interesting question: Does investing in well-regarded companies earn abnormally high returns—that is, returns that outperform the market? Judging from the mixed opinions encountered, the answer is not obvious. Investors who favor the “glamour”
This study analyses heuristic factors affecting investor sentiment and investment decision-making in the Indian stock market. A quantitative approach is formulated with the questionnaire design for the collection of primary data regarding investor sentiment, representativeness heuristic bias, overconfidence and availability bias. The data are collected from the structured questionnaires from individual investors. The collected data were analysed using partial least square structural equation modelling to examine the relationship between the constructs: investor sentiment, representativeness heuristic bias, overconfidence and availability bias. This paper provides empirical insights into the association of heuristic factors that positively influence investor sentiment and investment decision-making. It encourages investors to make reasonable choices and to control and understand their risk. The study sheds light on the impact of investor sentiment on investment decision-making and its antecedent. It shows that investors depend on sentiment when making investment choices. Policymakers should provide consumers with knowledge and appreciation of the correct stock choice; various campaigns considering the different groups of investors will benefit decision-makers and institutional financial practitioners. This paper allows investors to pick the proper investment assistance to avoid making wrong decisions that arise as an outcome of the attitude of investors.
Over the past two decades, there has been a remarkable increase in research endeavours in exploring behavioural biases within the context of investment decision-making. This growth can be attributed to the growing interest and publication efforts of academic scholars. The objective of this study is to conduct a systematic literature review (SLR) of the existing academic literature on the influence of behavioural biases on investment decisions (ID), utilizing bibliometric tools. Initially, a corpus of approximately 124 research papers was gathered by conducting a keyword search in the Scopus database. These papers were then subjected to inclusion and exclusion criteria, resulting in a final selection of 82 papers for in-depth analysis. Bibliometric analysis was conducted using VOS-viewer software, which identified the most prolific articles, authors and journals in the field. Moreover, a thematic analysis was performed to identify six clusters of author keywords, which were further grouped into three broader themes. This process shed light on the connections and patterns prevalent in the study of behavioural biases in investment decision-making. Crucially, keywords with the lowest link strength and co-occurrences played a vital role in identifying potential areas for future research. Additionally, the study identified approximately 50 research articles published from 30 top journals with the highest citations and h-index for further investigation. By following this systematic process, the study not only highlights gaps in the existing literature but also provides valuable insights for future endeavours. Ultimately, this study serves as a roadmap for guiding further investigations in the field of behavioural biases and their influence on ID. By delving into the relationships and themes surrounding these biases, the research aims to contribute significantly to the advancement of knowledge in this domain.
In 2015, Glassdoor published its first international Best Places to Work list in the United Kingdom. Since then, Glassdoor has begun publishing 10 different Best Places to Work lists in 9 different countries. Glassdoor's Best Places to Work lists are unique in that rankings are solely based upon employee reviews and are not influenced by self‐nominations or a cost paid by a company. With 64 million unique visitors each month, these Glassdoor lists have the potential to impact investors. In this paper, we explore whether firms appearing on lists for Canada, France, Germany and the United Kingdom result in short‐term announcement effects or long‐term abnormal returns on a raw‐ and risk‐adjusted basis. We find that the Canadian sample earns statistically significant abnormal returns in the announcement window 5 days after the announcement date. In the long run, we find that the Canadian sample also outperforms its matched sample and local index on a risk‐based basis.
The empirical evidence in the developed equity markets such as the United States, the United Kingdom, Germany, Japan and emerging markets had pronounced that there are institutional and individual investors’ cognitive psychology and mental biases in favor of the Growth Stocks, that is, the Growth Stocks are always preferred to the Value Stocks by the investors. The investors most times prefer the Growth Stocks to the Value Stocks irrespective of the stock fundamentals behavior in the equity market. The paper investigated whether Cognitive Psychology and Mental biases affect Portfolio Selection strategies using the Growth or the Value Stocks investment styles in the Nigerian Stock Market. In the study, the summary of the primary data was described and Multinomial Logistic Regression (MLR) models were adopted to make inferential decisions. The paper collected primary data through questionnaire administered to individual and institutional investors on the floor of Nigeria Stock Exchange (NSE). The findings from the analyses conducted confirmed a strong existence of Cognitive Psychology and mental biases in favor of the Growth Stocks in the Nigerian Equity Market. Investors had more belief in Growth Stocks than the Value Stocks notwithstanding the behavior of the market fundamentals. The study recommended that investors should seriously consider occurrences and performance fundamentals in Portfolio Selection in the Nigerian Equity Market.
Research on any topic seems incomplete till the time a standardized measure for it is not evolved. Measuring intangible assets seems to be a challenging core for the financial academia. More specifically, assigning value to company’s reputation is subjective which confound researchers around the globe. Despite prolific research into this issue, its measurement still baffles the scholars, practitioners, and managers. Although large number of survey methods (like Fortune Most Admired Companies [FMAC] list) have been used extensively, but certain serious limitations of these methods, finally paved way for quantitative tools to measure corporate reputation. An endeavour has been made through current study to compile the efforts of various researchers, who developed proxies for measuring corporate reputation. Reputation of 500 Indian companies constituting BSE 500 index has been measured using six proxies, and Spearman correlation is computed among these proxies. It is interesting to observe that Indian companies are able to maintain their reputation over the years. The findings of the study clearly reveal that reputation research still lacks a concrete measurement. It is high time for the accounting standard setters to devise a framework for measuring and reporting corporate reputation as it has been widely acclaimed as an indispensable asset.
Este artigo discute a metodologia proposta por Shimpi para a gestão de riscos baseada nos custos de transação e demais fricções existentes nos mercados. O artigo demonstra que a gestão de riscos é um instrumento para a redução dos custos de transação e, como tal, pode ser substituída, ou melhorada, por práticas não convencionais. O artigo é concluído com recomendações para o desenvolvimento e implementação de modelos e técnicas de gestão de riscos que considerem a fundamentação econômica apresentada. O trabalho não apresenta conclusões analíticas (dentro do paradigma positivo de pesquisa). Essa visão alternativa fornece um novo caminho para o desenvolvimento de pesquisas na área.This paper presents the methodology proposed by Shimpi for risk management practices based on transaction costs and other market frictions.The paper demonstrates that risk management is a tool for reducing transactions costs and, as such, it can be replaced or improved by non-conventional practices. We present some recommendations for the development and implementation of risk management models and techniques that consider the economic foundation presented. This paper does not present any analytical conclusions (like the ones usually found in positive-based research). This new approach provides an alternative path towards new investigations in the field.
Investor confidence and the quality of reported information are primary issues in our current financial reporting environment as a result of recent scandals and financial crises. Assessing the quality of reported financial information is an important issue for investors. Can investors use corporate reputation to assess earnings quality? This paper examines the association between corporate reputation and earnings quality. We use a public measure - "America's Most Admired Companies" - as a proxy for corporate reputation. These firms are considered to possess superior reputation. A cross-sectional accruals-based measure proxies for earnings quality. We compare the firms listed on America's Most Admired Companies of 2006 to a sample of control firms and find that sample firms have higher earnings quality than control films. Our results should be of interest to managers who engage in behavior leading to or maintaining a positive corporate reputation, and to financial analysts who conduct research on the impact of corporate reputation on earnings quality. Moreover, our study can increase individual investors' confidence in assessing the earnings quality of companies with a superior reputation.
Educators, administrators, and policy makers' interest in the concept of corporate reputation is growing. However, no researcher examines causal recipes for the value relevance of corporate reputation. This study therefore uses fuzzy-set qualitative comparative analysis (fsQCA) to explore the value relevance of corporate reputation for Taiwan listed companies over the period 2010–2013. The results show that corporate reputation adds to market value, even after controlling for earnings performance. These findings inform the affective component of corporate reputation is, at least, as important as the cognitive component. Furthermore, the findings extend previous research by showing that more than one casual combination of corporate reputation measurements is value-relevant. This study provides useful insights into the nature of corporate reputation.
Purpose
– The purpose of this paper is to identify whether the Spanish stock market experiences a negativity effect on the announcement of Spanish consumer sentiment information and if firms that are signatory to the UN Global Compact on corporate social responsibility are relatively more salient in the minds of investors.
Design/methodology/approach
– The authors use consumer sentiment announcements to show how the negativity effects on the Spanish stock market are significantly influenced by how salient the stock is in the minds of investors. If a firm’s stock exhibits negativity effects on the release of consumer sentiment information then this stock is salient to investors. If firms who are signatory to the UN Global Compact exhibit significant negativity effects, it could be concluded that these stocks are salient, particularly if firms that are not signatory to the Global Compact do not exhibit a similar negativity effect.
Findings
– The IBEX35 index experiences significant negativity effects upon the release of Spanish consumer sentiment announcements. This is similar to that reported in other countries, notably Australia and the USA. Using the constituent firms in the IBEX35 index, the authors find that those firms that are signatory to the UN Global Compact are significantly more likely to experience negativity effects upon the release of Spanish consumer sentiment information than if they are not signatory to the Global Compact. This indicates that firms that are part of the UN Global Compact are more salient to investors.
Research limitations/implications
– Available published Spanish data on consumer sentiment.
Practical implications
– Little is understood of the impact that consumer sentiment announcements have on stock prices. Studies in USA and Australia have identified significant negativity effects in stock markets when consumer sentiment information is released. This research has found that a psychological negativity bias occurs in firms that are salient to investors. Salience has been found to be important in asset pricing.
Originality/value
– This paper tries to find out which companies are more likely to sign the UN Global Compact. These companies are more sensitive to consumer sentiment, because they depend on the everyday decisions of the consumers. The more the companies depend on consumers, the more they care about them. And, when the consumer sentiment goes down, they are more affected by this sentiment. These firms are also more worried about the long term. They are not only thinking about the profits in the short term but also about maintaining the generation of profits in the long term.
The rapid growth of online investing and virtual investing-related communities (VICs) has a wide- raging impact on research, practice and policy. In this context, this research addresses how information is generated, discussed, and diffused within and across VICs, and how such activities impact market efficiency. Regulators are particularly interested given the potential for fraud and spreading of false rumors. However, understanding information processing in VIC is a challenge given enormity of posted messages. Automated analysis of these messages is primarily complicated by three factors: (a) the amount of irrelevant messages or "noise" messages (e.g., spam, insults), (b) the highly unstructured nature of the text (e.g., abbreviations), and finally, and (c) the wide variation in what is considered relevant information for a given company. We have developed a mechanism relying on commonly occurring terms and a set of classifying criteria to identify: (1)"noisy" messages that bear no relevance to the topic at hand, (2) messages that have relevance to the topic at hand, but do not express an opinion as to the quality of the investment, and (3) messages that are both relevant and express a sentiment about the quality of the investment. To test our mechanism we have collected approximately 3 million messages related to 46 stocks over a 2-year period. Preliminary results show sufficient promise to classify messages and how participants react. Preliminary results show the classifier a classification accuracy of 54% .
The effect of company reputation on its market value is an important issue of foreign reputation research. Based on the characteristic of Chinese capital market, this paper use the method of event studies, examined whether Chinese listed companies' reputation has wealth effect. And the conclusion is none. One of the main causes is the low efficiency of our capital market, and the other cause is the low effectiveness of reputation punishment and the weakness of the investor protection.
We find that an investor can earn abnormal profits in the long-run using Forbes Platinum list of the 400 best big companies. Our trading strategy is based on results of an event study. When using the four-factor model of Carhart (1997), our results show that buying and holding the ten lowest ranked companies in a portfolio for 36 months post-publication would generate on average positive and statistically significant abnormal return of 22.74%. Consistent with the overreaction hypothesis of De Bondt and Thaler (1985), we find low ranked companies outperform high ranked companies in the long run.
Using a unique database of management quality ratings over a 17 year period, we find that while good management appears to be associated with lower subsequent market returns, this is entirely consistent with an informationally efficient market. Quality of management is value relevant in that better managed firms have lower cost of equity, more stable earnings, higher profitability that persists over time, and higher market valuations using the Ohlson (1995 and 2001) method. Potentially endogenous relationships are unlikely to be driving our results. While well managed firms are ‘good firms’, contrary to the belief of many market participants their stocks perform no better than those of poorly managed firms.
Ethical corporate citizenship and good corporate governance have received increased attention since the financial scandals prevalent at the beginning of the new millennium. This study first explores the relationship of ethical corporate citizenship to financial performance (i.e., greater profitability and efficiency, and lower cost of capital). Second, the study examines whether ethical corporate behavior is associated with a market-value premium. Results of prior studies are mixed. The results of our study contribute directly to the recent accounting literature in which specific aspects of ethical corporate behavior have been explored (Fukami et al. 1997; Ittner and Larker, 1998; Ballou et al., 2003; Clarkson et al., 2004). We use firms listed by Business Ethics as “The 100 Best Corporate Citizens” as our sample of ethical firms. The univariate results of our study indicate a significant relationship between ethical corporate behavior and financial performance (i.e., greater profitability and efficiency, and lower cost of capital). The results of multivariate tests, controlling for prior year market value of equity, yield results which indicate a marginally significant association between being recognized as ethical in that year and market value of equity, but no association between being recognized as ethical at least one time and market value of equity. Nevertheless, given our study’s findings of better financial performance and lower risk, we conclude that ethical corporate citizenship does indeed benefit a firm.
Prior research suggests that corporate credibility is associated with firm financial performance in developed countries. This
article examines whether corporate credibility is related to firm performance using Economic Observer’s rating of corporate credibility in China, the largest emerging market in the world. Based on a four-stage valuation model,
we find that more reputable and credible firms outperform those with low ratings by almost 20% in 3-year stock returns and
have better 3-year net profit margins, return on equity, and sales growth. This study is the first to directly examine the
relationship between corporate credibility and firm performance in emerging markets such as China, and our results confirm
that firms with high credibility exhibit better financial and market performance at least in the following 3years.
This paper examines the question of whether corporate social responsibility (CSR) commitments by firms have the potential to be effective means of transmitting public law norms internationally. In the absence of a legal framework to impose sanctions for misrepresentation of CSR quality, questions about the potential for CSR to exert binding effects on firms naturally arise. CSR activity may still be effective as a vehicle for transnational norm diffusion. One possibility is that some normative commitments will be profitable, so self-enforcing. Another possibility is that the emergence of international rankings combined with market discipline through effects on firm's stock prices will provide a substitute for legal enforcement of CSR commitments. This study assesses these possibilities by examining the effect of the Corporate Social Responsibility rankings associated with Fortune Magazine in 2004, 2005 and 2006. The paper uses an event study methodology to determine whether corporate social responsibility is perceived by investors as enhancing firm value, whether negative performance is punished by investors and what factors across firms and industries contribute to the market response to Corporate Social Responsibility ranking.
We test 17years of Super Bowl commercials, finding that "liked" commercials coincide with higher stock returns, despite controls for firm size and changes in sales. This is consistent with representativeness bias, the irrational relation of firm characteristics to returns.
We assess several aspects of analysts' forecasting performance for stocks included in Business Week's annual list of 100 "hot-growth" companies. We find that analysts underestimate earnings before stocks are included in the list, and they tend to overestimate them afterward. However, analysts revise their earnings estimates downward after stocks are included in the list, and the largest downward revisions are followed by significant negative stock returns. We conclude that analysts correctly assess the diminished prospects of stocks designated as "hot-growth" companies and that their forecast revisions have significant predictive power and value.
We know from empirical studies that stocks of small companies with high book-to-market ratios have provided higher returns than stocks of large companies with low book-to-market ratios. But do senior executives, outside directors and financial analysts believe that? We show that senior executives, outside directors and financial analysts surveyed annually by Fortune magazine rank companies as if they believe that good companies are large companies with low book-to-market ratios. They rank stocks as if they believe the opposite of what empirical research has demonstrated; they rank stocks as if they believe that good stocks are stocks of good companies. We argue that a misperception of the relationship between the quality of a company and the expected rate of return of its stock underlies the superior performance of stocks of small, high book-to-market companies and the weak relationship betweenrealized returns and beta.
Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreac-tion, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique. 1998 Elsevier Science S.A. All rights reserved.
This paper documents that strategies that buy stocks that have performed well in the past and sell stocks that hav e performed poorly in the past generate significant positive returns o ver three- to twelve-month holding periods. The authors find that the profitability of these strategies are not due to their systematic risk or to delay ed stock price reactions to common factors. However, part of the abnorm al returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented. Copyright 1993 by American Finance Association.
This paper presents new empirical evidence of predictability of individual stock returns. The negative first-order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve-month serial correlation is particularly strong. Using the observed systematic behavior of stock return, one-step-ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934-87 is 2.49 percent per month. Copyright 1990 by American Finance Association.
Our simulation results show that tests for long-horizon (i.e.. multi-year) abnormal security returns around firm-specific events are severely misspecified. The rejection frequencies using parametric tests sometimes exceed 30% when the significance level of the test is 5%. Our results are robust to many different abnormal-return models. Conclusions from long-horizon studies require extreme caution. Nonparametric and bootstrap tests are likely to reduce misspecification.
Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreaction, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique.
ABSTRACT Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market {3, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in {3 that is unrelated to size, the relation between market {3 and average return is flat, even when {3 is the only explanatory variable. THE ASSET-PRICING MODEL OF Sharpe (1964), Lintner (1965), and Black (1972)
This study examines, month-by-month, the empirical relation between abnormal returns and market value of NYSE and AMEX common stocks. Evidence is provided that daily abnormal return distributions in January have large means relative to the remaining eleven months, and that the relation between abnormal returns and size is always negative and more pronounced in January than in any other month — even in years when, on average, large firms earn larger risk-adjusted returns than small firms. In particular, nearly fifty percent of the average magnitude of the ‘size effect’ over the period 1963–1979 is due to January abnormal returns. Further, more than fifty percent of the January premium is attributable to large abnormal returns during the first week of trading in the year, particularly on the first trading day.
Security market research generally concludes that the returns on stocks with high price-to-earnings ratios, called growth stocks, often lag those with low P/E ratios, called value stocks. The author analyzes the future returns on a set of highly capitalized growth stocks in the early 1970s, known as the ''nifty-fifty.'' The study concludes that the long-term performance of these stocks often justified P/E ratios of 30, 40, or even higher, and that, contrary to popular wisdom, most nifty-fifty stocks were only slightly overvalued relative to the market at their 1972 price peak.
We analyze tests for long-run abnormal returns and document that two approaches yield well-specified test statistics in random samples. The first uses a traditional event study framework and buy-and-hold abnormal returns calculated using carefully constructed reference portfolios. Inference is based on either a skewness-adjusted "t"-statistic or the empirically generated distribution of long-run abnormal returns. The second approach is based on calculation of mean monthly abnormal returns using calendar-time portfolios and a time-series "t"-statistic. Though both approaches perform well in random samples, misspecification in nonrandom samples is pervasive. Thus, analysis of long-run abnormal returns is treacherous. Copyright The American Finance Association 1999.
The authors test the hypothesis that, when their compensation is linked to relative performance, managers of investment portfolios likely to end up as 'losers' will manipulate fund risk differently than those managing portfolios likely to be 'winners.' An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Furthermore, the authors show that this effect became stronger as industry growth and investor awareness of fund performance increased over time. Copyright 1996 by American Finance Association.
An analysis of new buy and sell recommendations of stocks by security analysts at major U.S. brokerage firms shows significant, systematic discrepancies between prerecommendation prices and eventual values. The initial return at the time of the recommendations is large, even though few recommendations coincide with new public news or provide previously unavailable facts. However, these initial price reactions are incomplete. For buy recommendations, the mean postevent drift is modest (+2.4 percent) and short-lived, but for sell recommendations, the drift is larger (-9.1 percent) and extends for six months. Analysts appear to have market timing and stock picking abilities. Copyright 1996 by American Finance Association.
A highly controversial issue in financial economies is whether stocks overreact. In this paper we find an economically-important overreaction effect even after adjusting for size and beta. In portfolios formed on the basis of prior five-year returns, extreme prior losers outperform extreme prior winners by 5–10% per year during the subsequent five years. Although we find a pronounced January seasonal, our evidence suggests that the overreaction effect is distinct from tax-loss selling effects. Interestingly, the overreaction effect is substantially stronger for smaller firms than for larger firms. Returns consistent with the overeaction hypothesis are also observed for short windows around quarterly earnings announcements.
This paper develops a new model of market abuse detection in real time. Market abuse is detected, as Minenna (2003) proposed, on the basis of prediction intervals. The model structure is based on the discrete-time, extended market model introduced by Monteiro, Zaman, Leitterstorf (2007) to analyze the market cleanliness. Parameters of the expected return equation are assumed, however, to be time-varying and estimated under the state-space framework using the extended Kalman filter postulated by Chou, Engle, Kane (1992) to capture the GARCH effect in returns. QML estimation is performed on intraday data; its utilization is proposed as an alternative to the continuous time modeling by Minenna (2003). This framework is generalized to the bivariate case which enables the analysis of daily open/close data. The paper also extends procedures of the statistical verification of the estimated state-space model to include the uncertainty arising from time-invariant parameters.
In a previous paper, we found systematic price reversals for stocks that experience extreme long‐term gains or losses: Past losers significantly outperform past winners. We interpreted this finding as consistent with the behavioral hypothesis of investor overreaction. In this follow‐up paper, additional evidence is reported that supports the overreaction hypothesis and that is inconsistent with two alternative hypotheses based on firm size and differences in risk, as measured by CAPM‐betas. The seasonal pattern of returns is also examined. Excess returns in January are related to both short‐term and long‐term past performance, as well as to the previous year market return.
For many years, scholars and investment professionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This article provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier. Copyright 1994 by American Finance Association.
The primary aim of the paper is to place current methodological discussions in macroeconometric modeling contrasting the ‘theory first’ versus the ‘data first’ perspectives in the context of a broader methodological framework with a view to constructively appraise them. In particular, the paper focuses on Colander’s argument in his paper “Economists, Incentives, Judgement, and the European CVAR Approach to Macroeconometrics” contrasting two different perspectives in Europe and the US that are currently dominating empirical macroeconometric modeling and delves deeper into their methodological/philosophical underpinnings. It is argued that the key to establishing a constructive dialogue between them is provided by a better understanding of the role of data in modern statistical inference, and how that relates to the centuries old issue of the realisticness of economic theories.
Does corporate quality matter?
- Robyn M Mclaughlin
- S Richard
- Hassan Ruback
- Tehranian
McLaughlin, Robyn M., Richard S. Ruback, Hassan Tehranian, 1996, Does corporate quality matter?, Suffolk University,
working paper.
Comparing Expectations about Stock Returns to Realized Returns
- H Shefrin
- M Statman
Shefrin, H. and M. Statman, 1998, Comparing Expectations about Stock Returns to Realized Returns, Santa Clara
University, working paper.