Emerald | Managerial Finance | Table of Contents

The Explanatory Power of Earnings for Stock Returns in the pre- and post-IFRS Era: Some Evidence from Greece

literatinetwork@emeraldinsight.com (Christos I. Negakis) — Fri, 02 Aug 2013 00:00:00 +0100

Abstract

Purpose - This study examines the effects of the introduction of the International Financial Reporting Standards (IFRS) on the explanatory power of earnings for stock returns in Greece. Design/methodology/approach - The study uses variants of the Easton and Harris (1991) model. Moreover, the study controls for asymmetries in the information content of earnings and losses.Findings - The findings show that the IFRS had several effects on the value relevance of earnings. In particular, the available information content of both earnings and earning changes decreased after the introduction of the IFRS. The reduction in the information content of earnings for returns (or the information content of book values of equity for stock prices) could be attributed to the IFRS and, in particular, to the introduction of the fair value principle. Moreover, even after controlling for the existence of asymmetries, the findings of reduced information content of earnings and earning changes for stock returns persist.Originality/value - The study makes a significant contribution to the research of the implementation of the IFRS. In particular, the study examines the adoption of a set of high quality standards in a country where accounting was dominated by tax laws and governmental intervention.

On the integration of European capital markets

literatinetwork@emeraldinsight.com (Panayotis Alexakis, Anna Vasila) — Fri, 02 Aug 2013 00:00:00 +0100

Abstract

Purpose - The paper investigates European equity market integration by analyzing volatility spillover effects between selected indices of high liquidity from the major regulated European equity markets. Design/methodology/approach - In undertaking the empirical analysis, data for major European stock market indices were utilised. The conditional variance of the VAR-GARCH model for each pair of indices is examined. Findings - The results provide evidence on strong EU equity market integration. The findings in general suggest a high degree of European equity market interconnection. This situation is depicted through strong effects from one European equity market to the other, as well as through significant feedback effects between them.Originality/value - The high level of interconnection found among the EU stock markets exerts significant influence on the efficient operation of each market and on asset and index pricing, which has therefore to be taken into account by investors and traders as market prices are set in common.

How Bureaucracy and Corruption affect economic growth and convergence in the European Union? The case of Greece.

Fri, 02 Aug 2013 00:00:00 +0100

Abstract

Purpose - This paper examines the impact of corruption and bureaucracy on economic growth in Greece as measured by the growth rate of per capita GDP. Also, using the mean per capita GDP of the EU as a benchmark, it investigates the convergence timing of Greece with the EU. Design/methodology/approach - The empirical approach taken is based on beta convergence theory.Findings - The results confirm the negative impact of bureaucracy and corruption on economic growth. However, the corruption exerts a more significant influence on growth than bureaucracy. Also, the timing of convergence of Greece with the EU is found to be 37 years. Originality/value - The robustness of these results is based on the use of a relatively new econometric method which is the Markov Conditional Bootstrap.

Analysis of Cross-Border and Domestic Mega-M&As of European Commercial Banks.

literatinetwork@emeraldinsight.com (Matthias Nnadi, Sailesh Tanna) — Fri, 02 Aug 2013 00:00:00 +0100

Abstract

Purpose - This paper examines value gains to acquirers in large commercial bank mega-mergers (with transaction values over £1 billion) that occurred in the European Union during the period 1997-2007, distinguishing between domestic and cross-border transactions.Design/methodology/approach - Based on a sample of 62 bank mega-mergers, an event study methodology is employed using a market model to determine cumulative standardised abnormal returns (CSAR) to acquiring banks around the announcement date of completed merger deals. This is followed by cross-sectional regression to determine specific characteristics driving acquirers’ CSAR.Findings - Cross-border bank mergers have been more frequent in recent years, reflecting a growing trend of banking sector consolidation in the EU. However, such mergers are found to yield significant negative announcement period acquirer returns, while domestic deals have marginally negative but insignificant returns. The operational cost efficiency and capital strength of acquiring banks are found to be significant in influencing excess returns.Research limitations/implications - Constraints on data availability limited the scope for sensitivity analysis and incorporation of target characteristics in the cross-sectional regression of drivers affecting acquirers’ CSAR. Further research is aimed to address these issues.Practical implications - Event study and regression results indicate that potential downside risks are judged by market participants to outweigh the benefits from cross-border M&As in the retail banking market despite evidence of increased financial sector consolidation in the EU.Originality/value - The study reflects a recent time period of increased cross-border banking consolidation in the EU and reveals findings that differ in some respects from previous studies on EU bank M&As.

Does Intervalling Effect Affect ETFs?

Fri, 02 Aug 2013 00:00:00 +0100

Abstract

Purpose - This paper investigates the intervalling effect bias in ETFs’ systematic risk expressed by beta. Our findings reveal the existence of a significant intervalling effect on ETFs’ beta obtained by the ordinary least squares method (OLS). Also investigated, is the impact of ETFs’ capitalization on beta. Results provide evidence that small cap ETFs have greater betas than large cap ETFs. Results also reveal that the OLS beta of all ETFs increases when the return interval is lengthened regardless of capitalization. The impact of ETFs’ trading activity on systematic risk is assessed too. Findings give evidence that the OLS betas of the ETFs that trade infrequently are biased downwards while the beta of the frequently traded ETFs is biased upwards. Finally, the paper reveals a strong intervalling effect on ETFs’ tracking error. Design/methodology/approach - We employ a sample of 40 broad-based ETFs listed on Nasdaq Stock Exchange to test whether beta estimates change when the return interval measurement changes. Our data cover a maximum period of 10 years starting from September 16, 1998 using daily, weekly and monthly return data. We estimate beta applying three alternative methods: the market model applied with the OLS method, the Scholes and Williams (1977) model (SW beta) and the Dimson (1979) model (Dim beta). Findings - Results indicate that the average beta of ETFs derived by the OLS method increases when the return interval increases. The differences among the daily, weekly and monthly OLS betas are statistically significant at the 1% level. This finding implies a strong intervalling effect bias in ETFs’ OLS beta. On the other hand, we did not find any statistically significant differences in daily, weekly and monthly Scholes and Williams and Dimson betas. Moreover, results show that the daily and weekly OLS and Scholes and Williams betas and weekly OLS and Dimson betas are significantly different from each other. Originality/value - In this paper using a sample of 40 broad-based ETFs listed on Nasdaq Stock Exchange we have examined various issues concerning: the intervalling effect bias in ETFs’ systematic risk, the relation between beta and capitalization of ETFs, the relation between beta and trading frequency of ETFs and, finally, the intervalling effect bias in ETFs’ tracking error. While the literature on intervalling effect on securities’ beta and the relation between systematic risk and market value and trading activity is voluminous, this is the first attempt to examine these issues with respect to ETFs.