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Detecting long-run abnormal stock returns: The empirical power and specification of test statistics, (1997)

by Brad M Barber, John D Lyon
Venue:Journal of Financial Economics
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From state to market: a survey of empirical studies on privatization’,

by W Megginson, J Netter - Journal of Economic Literature, , 2001
"... ..."
Abstract - Cited by 558 (17 self) - Add to MetaCart
Abstract not found

New evidence and perspectives on mergers

by Gregor Andrade, Mark Mitchell, Erik Stafford - Journal of Economic Perspectives , 2001
"... As in previous decades, merger activity clusters by industry during the 1990s. One particular kind of industry shock, deregulation, becomes a dominant factor, accounting for nearly half of the merger activity since the late 1980s. In contrast to the 1980s, mergers in the 1990s are mostly stock swaps ..."
Abstract - Cited by 497 (3 self) - Add to MetaCart
As in previous decades, merger activity clusters by industry during the 1990s. One particular kind of industry shock, deregulation, becomes a dominant factor, accounting for nearly half of the merger activity since the late 1980s. In contrast to the 1980s, mergers in the 1990s are mostly stock swaps, and hostile takeovers virtually disappear. Over our 1973 to 1998 sample period, the announcement-period stock market response to mergers is positive for the combined merging parties, suggesting that mergers create value on behalf of shareholders. Consistent with that, we find evidence of improved operating performance following mergers, relative to industry peers.

Improved methods for tests of long-run abnormal stock returns

by John D. Lyon, Brad M. Barber, Chih-ling Tsai, Raghu Rau, Jay Ritter, René Stulz, Brett Trueman, Ralph Walkling - Journal of Finance , 1999
"... 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 ..."
Abstract - Cited by 375 (12 self) - Add to MetaCart
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 skewnessadjusted 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. COMMONLY USED METHODS TO TEST for long-run abnormal stock returns yield misspecified test statistics, as documented by Barber and Lyon ~1997a! and Kothari and Warner ~1997!. 1 Simulations reveal that empirical rejection levels routinely exceed theoretical rejection levels in these tests. In combination, these papers highlight three causes for this misspecification. First, the

Capital markets research in accounting

by S.P. Kothari , 2001
"... I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the politica ..."
Abstract - Cited by 300 (9 self) - Add to MetaCart
I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

Managerial decisions and long-term stock price performance

by Mark L. Mitchell, Erik Stafford - Journal of Business , 2000
"... A rapidly growing literature claims to reject the efficient market hypothesis by producing large estimates of long-term abnormal returns following major corporate events. The preferred methodology in this literature is to calculate average multi-year buy-and-hold abnormal returns and conduct inferen ..."
Abstract - Cited by 299 (4 self) - Add to MetaCart
A rapidly growing literature claims to reject the efficient market hypothesis by producing large estimates of long-term abnormal returns following major corporate events. The preferred methodology in this literature is to calculate average multi-year buy-and-hold abnormal returns and conduct inferences via a bootstrapping procedure. We show that this methodology is severely flawed because it assumes independence of multi-year abnormal returns for event firms, producing test statistics that are up to four times too large. After accounting for the positive cross-correlations of event firm abnormal returns we find virtually no evidence of reliable abnormal performance for our samples.
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...ping Since the BHAR is the difference of a sample firm’s three-year return and the three-year return on a benchmark portfolio, the distribution of individual firm BHARs is strongly positively skewed (=-=Barber and Lyon, 1997-=-) and generally does not have a zero mean. Therefore, statistical inference for the mean BHAR is often based on an empirical distribution simulated under the null of the model as applied by Brock, Lak...

Performance matched discretionary accrual measures

by S. P. Kothari, Andrew J. Leone, Charles E. Wasley, Jerry Zimmerman, S. P. Kothari, Arthur Andersen - Journal of Accounting and Economics , 2005
"... Using discretionary accruals to test for earnings management and market efficiency is commonplace in the literature. We develop a well-specified (rejects the null hypothesis, when it’s true, at the test’s nominal significance level) and powerful (rejects a false null hypothesis with high probability ..."
Abstract - Cited by 283 (4 self) - Add to MetaCart
Using discretionary accruals to test for earnings management and market efficiency is commonplace in the literature. We develop a well-specified (rejects the null hypothesis, when it’s true, at the test’s nominal significance level) and powerful (rejects a false null hypothesis with high probability) measure of discretionary accruals. A key feature of the discretionary accrual measure is that it is adjusted for the accrual performance of a matched firm where matching is on the basis of return on assets and industry. We advocate matching to control for the impact of performance on accruals. Our results suggest that performance matching is crucial to the design of well-specified tests based on discretionary accruals. Researchers will be able to draw more reliable inferences if they use a performance-matched discretionary accrual measure as proposed in this study. Performance Matched Discretionary Accrual Measures 1.

A SURVEY OF BEHAVIORAL FINANCE

by Nicholas Barberis, Richard Thaler , 2003
"... ..."
Abstract - Cited by 248 (7 self) - Add to MetaCart
Abstract not found

A Review of IPO Activity, Pricing, and Allocations

by Jay Ritter, Ivo Welch , 2002
"... ..."
Abstract - Cited by 223 (10 self) - Add to MetaCart
Abstract not found

Underwriting relationships, analysts’ earnings forecasts and investment recommendations,

by Hsiou-Wei Lin , Maureen F Mcnichols - Journal of Accounting and Economics , 1998
"... Abstract We examine the effect of underwriting relationships on analysts' earnings forecasts and recommendations. Lead and co-underwriter analysts' growth forecasts and recommendations are significantly more favorable than those made by unaffiliated analysts, although their earnings forec ..."
Abstract - Cited by 213 (4 self) - Add to MetaCart
Abstract We examine the effect of underwriting relationships on analysts' earnings forecasts and recommendations. Lead and co-underwriter analysts' growth forecasts and recommendations are significantly more favorable than those made by unaffiliated analysts, although their earnings forecasts are not generally greater. Investors respond similarly to lead underwriter and unaffiliated 'Strong buy' and 'Buy' recommendations, but three-day returns to lead underwriter 'Hold' recommendations are significantly more negative than those to unaffiliated 'Hold' recommendations. The findings suggest investors expect lead analysts are more likely to recommend 'Hold' when 'Sell' is warranted. The postannouncement returns following affiliated and unaffiliated analysts' recommendations are not significantly different. 1998 Elsevier Science B.V. All rights reserved. JEL classification: M4; G14; G24
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...ead ‘Hold’ recommendations are negative, but insignificantly different from those of unaffiliated analysts. The return behavior in the announcement and post-announcement periods bears on recent findings by Dechow et al. (1998). They test whether investors correct for bias in analysts’ growth forecasts, and find that growth expectations in price are inconsistent with adjustment by investors. In contrast, we find that investors do correct bias in unaffiliated analysts’ ‘Hold’ recommendations. 11For further discussion of methodological issues in measuring abnormal returns over long horizons, see Barber and Lyon (1997) and Kothari and Warner (1997). 12One caveat to the interpretation of these results is that our design compares the returns to lead underwriter and unaffiliated analysts’ recommendations for firms issuing seasoned equity offerings. Our design thus holds the stocks constant and compares returns to recommendations, and therefore does not reflect differences in analysts’ stock-picking ability. An alternative design is to examine the returns to all the recommendations of a sample of analysts, allowing different coefficients for the affiliated and unaffiliated recommendations. This would better ref...

Earnings Management and the Underperformance of Seasoned Equity Offerings

by Siew Hong Teoh, Ivo Welch, T.J. Wong , 1998
"... Seasoned equity issuers can raise reported earnings by altering discretionary accounting accruals. We find that issuers who adjust discretionary current accruals to report higher net income prior to the o#ering have lower post-issue long-run abnormal stock returns and net income. Interestingly, the ..."
Abstract - Cited by 206 (9 self) - Add to MetaCart
Seasoned equity issuers can raise reported earnings by altering discretionary accounting accruals. We find that issuers who adjust discretionary current accruals to report higher net income prior to the o#ering have lower post-issue long-run abnormal stock returns and net income. Interestingly, the relation between discretionary current accruals and future returns (adjusted for firm size and book-to-market ratio) is stronger and more persistent for seasoned equity issuers than for non-issuers. The evidence is consistent with investors naively extrapolating pre-issue earnings without fully adjusting for the potential manipulation of reported earnings. # 1998 Elsevier Science S.A. All rights reserved.
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