Surendranath R. Jory

The long-run performance of firms emerging from Chapter 11 bankruptcy

In this article, we assess the stock price performance of 184 firms emerging from Chapter 11 bankruptcy between 1980 and 2006. We find their mean post-bankruptcy performance to be similar to the performance of their size and-book-to-market control firms, as well as to the performance of their respective New York Stock Exchange–American Stock Exchange (NYSE–AMEX) beta decile-portfolio. We also analyse the effects of the bankruptcy process, new equity ownership and Chief Executive Officer (CEO) changes on the stock price performance of firms that emerged from Chapter 11. We find that being incorporated in the state of Delaware, the bankruptcy duration, a prepackaged bankruptcy, and the proportion of equity retained by the pre-Chapter 11 shareholders positively influence stock price performance. We also find that filing Chapter 11 with the Delaware Bankruptcy District Court, a change in the companys name, equity ownership by management, and the experience of the new CEO leading the firm out of bankruptcy do not lead to improved performance post-bankruptcy.

The market response to corporate scandals involving CEOs

This article examines corporate scandals of both a financial and nonfinancial nature between 1993 and 2011 which is expressly linked to a firm’s CEO. Findings suggest that in the short run, investors react adversely to such events and that recalcitrant CEOs end up costing their shareholders dearly. Such scandals are more likely to occur among large firms, firms with insiders on the board and where the value of options granted to a firm’s managers is substantial. However, firms with more cash flows are less likely to be mired in such scandals, and their stock returns are less likely to be affected. There is an increase in stock price volatility of affected firms in the days following the announcement of the scandal. A point of respite for investors is the damage being confined to the short run. The stock price performance of the firms affected by the scandals matches the performance of control firms in the long run post-announcement. However, the operating performance of the sample firms is better than their matched counterparts in the years after the scandal. We contribute to the extant literature by considering corporate scandal events that are the doings of a firm’s CEO and not necessarily financially motivated.

The wealth effects of acquiring foreign government-owned corporations: evidence from US-listed acquirers in cross-border mergers and acquisitions

We study the short- and long-term effects of acquiring targets that are government owned, which we refer to as Government-Owned Corporations (GOCs). Our sample of acquirers consists of US-listed public corporations, while the targets are GOCs based outside the US. In comparison to acquisitions of non-GOCs, we find that the wealth effects of acquiring GOCs are more favourable. We also find that GOC targets located in countries with poorer governance characteristics positively impact the shareholders’ wealth of the acquirer. Our evidence suggests that acquirers of foreign GOCs exploit target country governance imperfections to their advantage.

A multi-country analysis of the 2007–2009 financial crisis: empirical results from discrete and continuous time models

In this article, we provide empirical evidence of the recent financial crisis over 2007–2009 using discrete time multivariate GARCH (MGARCH) models and continuous time modelling approaches. Using daily data for 14 countries, we investigate the return and volatility spillovers among the US and other international markets. The MGARCH results reveal positive return spillovers from the US to a number of markets, and volatility transmission is verified. The US market is prone to return and volatility transmission from a limited number of markets. The continuous time analysis finds evidence of feedback effects in some cases. Evidence shows that spillover effects intensified during the financial crisis.

The wealth effects of investing in information technology: the case of Sarbanes-Oxley section 404 compliance

Purpose - Section 404 of the Sarbanes-Oxley Act of 2002 (SOX 404) requires auditors to attest to, and report on, managements assessment and effectiveness of the companys internal control systems. This paper aims to examine investor reaction to companies announcements of new information technology (IT) or improved existing IT to satisfy requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Design/methodology/approach - Using a sample of 124 SOX-related IT announcements from 2003 to 2007, an event study measuring market reactions using average cumulative abnormal return is undertaken. Additionally, the cross-sectional variation in the marketplace is analyzed to test the effect of firm-specific factors on market responses. Findings - The empirical results suggest that the stock market reacts favorably to corporations that invest in SOX 404-related IT. The reaction is more favorable toward companies without prior reported internal control deficiencies/weaknesses. Additionally, the results marginally support the notion that firms with higher risk and poorer financial reporting quality can demonstrate their commitment to improve internal control over financial reporting by investing in IT for SOX 404 compliance. Originality/value - The findings will influence companies IT investment decisions, particularly IT decisions that are SOX Section 404-related. Potential benefits of SOX 404 IT investments include favorable market returns. Additionally, the study contributes to a deeper understanding of SOX for standard-setting and regulation bodies examining past rulings and preparing for future regulation.

Real activities manipulation by bidders prior to mergers and acquisitions

Purpose - This study aims to examine the ability of investors to process signs of real activities manipulations at bidder firms in the quarters leading to the announcement of a merger. It further provides a supplementary explanation for the post-merger underperformance puzzle. Design/methodology/approach - Examining a sample of cash-only, stock swap and mixed mergers completed between 1980 and 2011, it was found that bidder firms increase the use of real activities manipulation in the quarters leading up to the merger announcements. Using average abnormal stock return method, it is shown that the short-term positive effect of real activities manipulation on share prices is stronger than accrual-based earnings management. Findings - While bidders are able to escape investors’ scrutiny in the short run, it is not the case in the long run. It was found that bidders’ long-run stock performance, measured by matched buy-and-hold stock returns, is inversely related to their pre-announcement level of earnings management. This paper contributes to the literature on earnings management by considering how real activities manipulations affect stock prices in mergers and acquisitions. Originality/value - This study tests whether real activities manipulation, in addition to accrual-based earnings management, explains the underperformance puzzle of the acquiring firms in M&As. Zang (

Institutional ownership and the spillover effects of shareholder activism

Research question/issue: This study examines the spillover effects of institutional activism on non-targeted firms, which share the same ownership and size characteristics as targeted firms. Research findings/insights: We document that institutional activism leads to a significant spillover effect at non-targeted firms, which share the same ownership and size characteristics as the targeted firms. The portfolios of matching non-targeted firms experience a significant positive wealth effect on announcement of shareholder activism campaigns at a targeted firm. Managers of the matching on-targeted firms respond to the activism threats by reducing agency costs (i.e. reducing cash balance and increasing dividend payment) and by improving operating performance (i.e. improving profitability ratios and cutting down on capital and operating expenditure). We further show that shareholder activism impacts not only stock returns but also stock risk. Theoretical/academic implications: First, we study the effects of institutional activism using a new database, i.e. the Thomson Reuters shareholder activism intelligence (TRSAI), which allows us to study the effects of various types of activist investors beyond hedge funds. We highlight that the positive externalities of shareholder activism depend on institutional ownership. The higher the proportion of institutional shareholdings, the larger is the wealth effect and the decline in risk measures. However, the volatility in institutional shareholdings produces an opposite effect. Practitioner/policy implications: Our study highlights that the threat of activism as a potent force in disciplining companies extends well beyond targeted firms.

Real earnings management activities prior to bond issuance

We examine real activities manipulation by firms prior to their debt issuances and how such manipulation activities affect bond yield spreads. We find that bond-issuing firms increase their real activities manipulation in the five quarters leading to a bond issuance. We document an inverse association between yield spread and pre-issue real activities manipulation, i.e., firms engaged in abnormally high levels of real activities manipulation are associated with subsequent lower cost of debt.

Institutional ownership stability and dividend payout policy

The purpose of this paper is to empirically examine the link between institutional ownership stability and dividend payout ratio.,First, the authors estimate the propensity of a firm to pay dividend. Next, the authors perform panel fixed-effect regressions of dividend payouts on institutional ownership stability variables. The authors also compare institutional ownership between dividend paying and non-dividend paying investee firms. The authors analyze the dividend preferences of different types of institutional owners. Finally, the authors examine the cross-sectional variation in the volatility of dividend payouts.,The authors find that stable and large institutional owners favor dividend paying companies. There also exists a positive association between ownership persistence and dividend payout. Conversely, firms that change their dividend payout frequently are associated with larger deviations in institutional ownership. Additionally, the presence of pressure-sensitive institutional investors (i.e. investors that also hold business ties with the investee firm) is significantly linked to dividend payout policy. Conversely, pressure-insensitive investors use alternative forms of monitoring instead of requiring investee firms to pay dividends, which serve to reduce agency conflicts.,This paper considers the preferences of long-term stable institutional investors in their selection of dividend paying firms.

Institutional ownership and senior-level executives' tenure

In this paper, the authors document a positive relationship between senior-level executives tenure and the shareholdings of institutional investors in US public firms between 1992 and 2013. The authors find that executive tenure is higher in the presence of institutional investors, and tenure is positively related to both the proportion of shares held by the institutional investors and the stability in their shareholdings. The results suggest that there exists a clientele effect with respect to the choice of senior executives by institutional investors. The authors further document that the positive relationship is true for pressure-sensitive institutional investors but not for pressure-insensitive ones. Our findings suggest that investors that have business ties with firms, other than their investments, are more likely to support a long-term working relationship with the firm executives.