Wealth effects of delistings announcements in Europe

  • 1274 Views
  • 487 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Using a European dataset of 478 delistings, the authors investigate the role of corporate governance in the short-term performance of European stocks around a delisting decision. In order to achieve this, the authors utilize the event study methodology in multiple contexts and cross-sectional regression analysis. This is particularly evident in high shareholder protection environments in a finding, related with investors’ perception of the security they experience in the particular market, as well as the afterlife of the under delisting stock and the potential of value creation or destruction. In high investor protection environments the delisting event causes negative abnormal returns both for voluntary and involuntary delistings. The authors conjecture that these delistings, whether referring to LBOs, delistings from secondary listings or BOSOs, are strategic decisions, and in this respect pre-delisting shareholders acknowledge that there is life after delisting. Under low investor protection the above holds only for involuntary ones. Companies failing to meet capital market criteria and voluntary delistings appear to have significantly smaller losses than under bankruptcy firms, on average, on the eve of the delisting event. These abnormal returns are basically affected by the firms’ financial soundness and the corporate governance level pertaining in the host market. Cross-sectional regression analysis shows also the inverse relationship between the degree of governance structures and market reaction to delistings announcements.

view full abstract hide full abstract
    • Table 1. Distribution of delistings per year and type
    • Table 2. Average abnormal returns and cumulative average abnormal returns around delistings announcement days
    • Table 3. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the strength of auditing and reporting standards
    • Table 4. Average abnormal returns and cumulative average abnormal returns around delistings announcement days based on the degree of efficacy of corporate boards
    • Table 5. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the degree of protection of minority shareholder interests
    • Table 6. Average abnormal returns and cumulative average abnormal returns around delistings announcement days, based on the strength of investor protection
    • Table 7. Correlation between regression estimates variables
    • Table 8. Cross-sectional regression results
    • Altman, E. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23, 589-609.
    • Andres, C., Betzer, A., and Weir, C. (2007). Shareholder wealth gains through better corporate governance – The case of European LBO-transactions. Financial Markets and Portfolio Management, 21(4), 403-424.
    • Baker, G. P. and Kennedy, R. E. (2002). Survivorship and the economic grim reaper. Journal of Law, Economics, and Organization, 18(2), 324-361.
    • Bartlett R. III. (2009). Going private but staying public: Reexamining the effect of Sarbanes-Oxley on firms’ going private decisions. University of Chicago Law Review, 76(1), 7-44.
    • Bessler, W., Kaen, F. R., Kurmann, P., and Zimmermann, J. (2012). The listing and delisting of German firms on NYSE and NASDAQ: Were there any benefits? Journal of International Financial Markets, Institutions and Money, 22, 1024-1053.
    • Boubaker, S., Cellier, A., and Rouatbi, W. (2014). The sources of shareholder wealth gains from going private transactions: the role of controlling shareholders. Journal of Banking and Finance, 43, 226-246.
    • Brown, S. T., and Warner, J. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3-31.
    • Campbell, J., Lo, A., and MacKinlay, C. (1997). The Econometrics of Financial Markets. Princeton University Press, New Jersey.
    • Chaplinsky, S., and Ramchand, L. (2012). What drives delistings of foreign firms from U.S. Exchanges? Journal of International Financial Markets, Institutions and Money, 22, 1126-1148.
    • Croci, E., and Del Giudice, A. (2014). Delistings, Controlling Shareholders and Firm Performance in Europe. European Financial Management, 20(2), 374-405.
    • Das, S., Shahrokh, S., and Ranjan, S. (2004). An empirical examination of NYSE stocks voluntarily de-listing from the Tokyo Stock Exchange. Review of Accounting and Finance, 3(4), 47-72.
    • Dasilas, A., and Grose, C. (2016). The wealth effects of public to private LBOs: Evidence from Europe. Working paper, University of Macedonia.
    • Dawkins, M. C., Bhattacharya, N., and Bamber, L. S. (2007). Systematic Share Price Fluctuations after Bankruptcy Filings and the Investors who drive them. Journal of Financial and Quantitative Analysis, 42(2), 399-420.
    • Dutta, A., and Dutta, P. (2015). Measuring long-run security price performance: a review. Investment Management and Financial Innovations, 12(2), 26-32.
    • Geranio, M., and Zanotti, G. (2012). Equity markets do not fit all: an analysis of public-to-private deals in Continental Europe. European Financial Management, 18(5), 867-895.
    • Guo, S., Hotchkiss, E. S., and Song, W.(2011). Do buyouts (still) create value? Journal of Finance, 66, 479-517.
    • Harris, J. H., Panchapagesan, V., and Werner, I. M. (2008). Off but not gone: a study ofNasdaqdelistings. Working paper. Accessed at http://ssrn.com/abstract=628203.
    • Kim, H., Liao, R., and Wang, Y. (2015). Active block investors and corporate governance around the world. Journal of International Financial Markets, Institutions and Money, 39, 181-194.
    • Leuz, C., Triantis, A., and Wang, T. Y. (2008). Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations. Journal of Accounting and Economics, 45, 181-208.
    • Liu, S. and Stowe, J. D. (2005). The Shareholder wealth effects of voluntary foreign delistings: An empirical analysis. Applied Financial Economics Letters, 1, 199-204.
    • Marosi, A., and Massoud, N. (2007). Why do firms go dark? Journal of Financial and Quantitative Analysis, 42, 421-442.
    • Martinez, I., and Serve, S. (2011). The delisting decision: the case of buyout offer with squeeze-out (BOSO). International Review of Law and Economics, 31(4), 229-239.
    • Nielsson, U. (2013).Do less regulated markets attract lower quality firms? Evidence from the London AIM market. Journal of Financial Intermediation, 22, 335-352.
    • Park, J., Lee, P. and Park, Y. W. (2014). Information Effect of Involuntary Delisting and Informed Trading. Pacific-Basin Finance Journal, 30, 251-269.
    • Pattitoni, P., Petracci, B. and Spisni, M. (2015). “Hit and Run” and “Revolving Doors”: Evidence from the Italian stock market. Journal of Management and Governance, 19, 285-301.
    • Pour, E. K., and Lasfer, M. (2013). Why do companies delist voluntarily from the stock market? Journal of Banking and Finance, 37, 4850-4860.
    • Sanger, G. C. and Peterson, J. D. (1990). An empirical analysis of common stock delisting. Journal of Financial and Quantitative Analysis, 25, 261-273.
    • Scholes, M., and Williams, J. (1977). Estimating betas from nonsynchronous data. Journal of Financial Economics, 5(3), 309-327.
    • Soongswang, A. (2013). Empirical evidence on acquisition activities. Investment Management and Financial Innovations, 10(1), 95-102.
    • Thomsen, S., and Vinten, F. (2014). Delistings and the costs of governance: A study of europeanstock exchanges 1996-2004. Journal of Management and Governance, 18, 793-833.
    • White, H. (1980). A heteroscedasticity-consistent covariance matrix estimator and a direct test for heteroscedasticity. Econometrica, 48, 817-838.
Related Articles

  • Does board composition have an impact on CSR reporting?

    Patrick VelteORCID Researcher ID doi: http://dx.doi.org/10.21511/ppm.15(2).2017.02
    Problems and Perspectives in Management Volume 15, 2017         Issue #2         pp. 19-35 Views: 4455 Downloads: 1718 TO CITE АНОТАЦІЯ

    Corporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.

  • Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria

    Gideon Tayo Akinleye , Odunayo OlarewajuORCID Researcher ID, Bamikole Samson Fajuyagbe doi: http://dx.doi.org/10.21511/ppm.17(1).2019.02
    Problems and Perspectives in Management Volume 17, 2019         Issue #1         pp. 11-18 Views: 3385 Downloads: 568 TO CITE АНОТАЦІЯ

    This study focused on corporate governance and performance of selected Nigerian multinational firms from 2012 to 2016. Specifically, the study focused on the effect of board size, activism and committee activism on return on asset and firm growth rate. Secondary data collected from four multinational firms were analyzed via static panel estimation techniques. While board size and board activism exerted significant negative impact on return on asset, committee activism exerted insignificant impact. The results of the study further showed that board size and board activism exert insignificant negative impact on firm’s growth rate, while committee activism insignificantly spurs firm’s growth rate. Decisively, discoveries from this study reflect that corporate governance has significant negative impact on return on asset, but has insignificant influence on the growth rate of Nigerian multinational firms. Based on these findings, the authors recommended that corporate governance dynamics in firms world over should be reconsidered, such that it gives credence to more than just numbers of persons or meetings held, but the main reasons and deliberations in such meetings. It was also recommended that excessive increase in magnitude or frequency of meetings held by board of directors cum committee should be avoided.

  • Impact of corporate governance mechanisms on financial reporting quality: a study of Indian GAAP and Indian Accounting Standards

    Faozi A. AlmaqtariORCID Researcher ID, Abdulwahid Abdullah HashedORCID , Mohd ShamimORCID , Waleed M. Al-ahdal doi: http://dx.doi.org/10.21511/ppm.18(4).2020.01
    Problems and Perspectives in Management Volume 18, 2020         Issue #4         pp. 1-13 Views: 2921 Downloads: 607 TO CITE АНОТАЦІЯ

    The present study examines the impact of corporate governance mechanisms on financial reporting quality under Indian GAAP and Indian Accounting Standards (Ind. AS). A sample of 97 companies listed on the Bombay Stock Exchange is selected. Corporate governance mechanisms have been considered as independent variables, and financial reporting quality is the dependent variable. Corporate governance is measured by board effectiveness (board size, independence, diligence, and expertise), audit committee attributes (size, independence, diligence, and expertise), foreign ownership, and audit quality. Descriptive statistics, correlation, and OLS regression are conducted to estimate the results. The study results reveal that board characteristics and audit committee attributes, except for audit committee diligence, have a significant effect on financial reporting quality. However, the impact of board diligence and audit committee attributes is negative. Foreign ownership has no contribution to financial reporting quality, but audit quality has a significant effect. The findings of the study have considerable implications for regulators, policymakers, managers, investors, analysts, and academicians. More emphasis should be given to compliance with Ind. AS, and an oversight body for compliance with Ind. AS should be established.

    Acknowledgment
    This publication was supported by Deanship of Scientific Research, Prince Sattam Bin Abdulaziz University, Alkharj, Saudi Arabia.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations