A Perspective on Promoter Ownership and Market Reaction to Corporate News: Evidence from India

Authors

1 Department of Management Studies, Bodoland University, Kokrajhar, Assam, India

2 Department of Management Studies, National Institute of Technology, Durgapur, West Bengal, India

Abstract

C





orporate governance structures in the wake of observed differences in firm ownership structures in developed markets and emerging market economies are distinct. In this paper, we examine the effect of an ownership structure of firms on the market reaction to corporate news flows in the context of emerging market economies like India. We observe the price and volume movements associated with eight different categories of corporate news flow (Analyst Calls, Earnings, Earnings forecasts, Finance, Legal and Regulatory, Management, Operations and Restructuring ) for a sample of firms listed on the National Stock Exchange of India after taking into consideration the extent of promoter ownership in the firm using the standard event study methodology. The magnitude of the price and volume reaction reveals that the market reaction to firm specific corporate news differs according to the type and sentiment of the news flow and the level of promoter ownership in the firm. We also provide a perspective on the relative importance of corporate news flow to the investors for firms with a distinct ownership structure.
 

Keywords


Abarbanell, J., Bushee, B., & Raedy, J. (2003). Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin-Offs. The Journal of Business, 76(2), 233-262.
 
Ali, A., Klasa, S., & Li, O. (2008). Institutional Stake holdings and Better Informed Traders at Earnings Announcement. Journal of Accounting and Economics, 46(1), 47-61.
 
Antweiler, W., & Frank, M. Z. (2006). Do U.S. Stock Markets Typically Overreact to Corporate News Stories? Working Paper, University of British Columbia, Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=878091.
 
Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Numbers. Journal of Accounting Research, 6(2), 159-178.
 
Ball, R., & Sivakumar, L. (2008). How Much New Information is there in Earnings. Journal of Accounting Research, 46(5), 975-1016.
 
Bamber, S. L., Barron, O. O., & Stevens, D. E. (2011). Trading Volume around Earnings Announcements and Other Financial Reports: Theory, Research Design, Empirical evidence, and Directions for Future Research. Contemporary Accounting Research, 28(2), 431-471.
 
Beaver, W. H. (1968). The Information Content of Annual Earnings Announcements. Journal of Accounting Research, 6, 67–92.
 
Brown, S. J. & Warner, J. B. (1985). Using Daily Stock Returns: The Case of Event Studies. Journal of Financial Economics, 14, 3–31.
 
----------- (1980). Measuring Security Price Performance. Journal of Financial Economics, 8, 205–258.
 
Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (1997). The Econometrics of Financial Markets. Princeton: Princeton University Press.
 
Chakrabarti, R. (2005). Corporate Governance in India: Evolution and Challenges. ICFAI Journal of Corporate Governance, 4(4), 50-68.
 
Chakraborty, N., & Mukhopadhyay, C. (2010). Stock Price Response to Firm Specific Events: Indian Evidence. South Asian Journal of Management (Institute of Public Enterprise, Hyderabad, India), 17(3), 38-52.
 
Corrado, C. J., & Truong, C. (2008). Conducting Event Studies with Asia-Pacific security market data. Pacific -Basin Finance Journal, 16, 493-521.
 
Cready, W., & Hurtt, D. N. (2002). Assessing Investor Response to Information Events Using Return and Volume Metrics. The Accounting Review, 77, 891-909.
 
De Jong, A., & Naumovska, I. (2016). A Note on Event Studies in Finance and Management Research. Review of Finance, 20(4), 1659-1672.
 
Demsetz, H., & Lehn, K. (1985). The Structure of Corporate Ownership: Causes and Consequences. Journal of Political Economy, 93, 1155-1177.
 
Demsetz, H. (1983). The Structure of Ownership and the Theory of the Firm.  Journal of Law and Economics, 26(2), 375-390.
 
Denis, P., & Strickland, D. (2002). Who Blinks in Volatile Markets, Individuals or Institutions. The Journal of Finance, 57(3), 1923-1949.
 
Dyckman, T., Philbrick, D., & Stephan, J. (1984). A Comparison of Event Study Methodologies Using Daily Stock Returns: A Simulation Approach. Journal of Accounting Research, 22, 1-30.
 
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25, 383-417.
 
Gross-Klussmann, A., & Hautsch, N. (2011). When Machines Read the News: Using Automated Text Analytics to Quantify High Frequency News-Implied Market Reactions. Journal of Empirical Finance, 18(2), 321-340.
Hotchkiss, E. S., & Strickland, D. (2003).Does Shareholder Composition Matter? Evidence from Market Reaction to Corporate Earnings Announcements. Journal of Finance, 58(4), 1469-1498.
 
Jankensgard, H., & Vilhelmsson, A. (2018).The Shareholder Base Hypothesis of Stock Return Volatility: Empirical Evidence. Financial Management, 47(1), 55-79.
 
Jankensgard, H. (2018). Between A Rock and A Hard Place: New evidence on the Relationship between Ownership and Voluntary Disclosure, International Review of Financial Analysis, 56, 281-291.
 
Jensen, M. C., & Meckling, W. H. (1976).Theory of the Firm: Managerial Behavior, Agency cost and Ownership Structure. Journal of Financial Economics, 3(4), 305-60.
 
Kothari, S., & Warner, J. (2007). Econometrics of Event Studies. Handbook of Corporate Finance, 1, 3-36.
 
Kumar, N., & Singh, J. P. (2013). Effect of Board Size and Promoter Ownership on Firm Value: Some Empirical Findings from India. Corporate Governance: The International Journal of Business in Society, 13(1), 88-98.
 
Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The Impact of Institutional Trading on Stock Prices. Journal of Financial Economics, 32(1), 23-43.
 
La Porta, R. L., De Silanes, F. L., Shleifer, A., & Vishny, R.W. (1998). Law and Finance. Journal of Political Economy, 106(6), 1113-1155.
 
La Porta, R. L., De Silanes, F. L., & Shleifer, A. (1999). Corporate Ownership around the World. Journal of Finance, 54(2), 471-517.
 
Michaely, R., Thaler, R., & Womack, K. (1995). Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift? Journal of Finance, 50(2), 573-608.
Moffett, C., & Naserbakht, M. (2013). Stock Price Behavior of Acquirers and Targets Due to M&A Announcement in USA Banking. Iranian Economic Review, 17(1), 105-114.
 
 
Morse, D. (1982). Wall Street Journal Announcements and the Securities Markets. Financial Analysts Journal, 38(2), 69-76.
 
Nazir, N., & Malhotra, A. K. (2017). The Effect of Ownership Structure on Market Valuation of Firms in India: Evidence from BSE 100 Index Companies. Academy of Accounting and Financial Studies Journal, 21(1), 1-11.
 
Neuhierl, A., Scherbina, A. D., & Schlusche, B. (2013). Market Reaction to Corporate Press Releases. Journal of Financial and Quantitative Analysis, 48(4), 1207-1240.
 
Nofsinger, J., & Sias, R. (1999). Herding and Feedback Trading by Institutional and Individual Investors. Journal of Finance, 54, 2263-2296.
 
Pritamani, M., & Singal, D. V. (2001). Return Predictability Following Large Price Changes and Information Releases. Journal of Banking and Finance, 25(4), 631-656.
 
Ryan, P., & Taffler, R. (2004). Are Economically Significant Stock Returns and Trading Volumes Driven by Firm-Specific News Releases? Journal of Business Finance and Accounting, 31, 49-81.
 
Schmitz, P. (2007). Market and Individual Investors Reactions to Corporate News in the Media. Working Paper, University of Mannheim. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004488
 
Shleifer, A., & Vishny, R. W. (1988).Value Maximization and the Acquisition Process. Journal of Economic Perspectives, 2(1), 7-20.
 
---------- (1986). Large Shareholders and Corporate Control. Journal of Political Economics, 94(3), 461-488.
Shleifer, A. (2005). Understanding Regulation. European Financial Management, 11(4), 439-451.
 
 
Sias, R. W., & Starks, L. T. (1997). Return Autocorrelation and Institutional Investors. Journal of Financial Economics, 46, 103-131.
 
Sprenger, T. O., Sander, P. G., Tumasjan, A., & Welpe, I. M. (2014). News or Noise? Using Twitter to Identify and Understand Company-specific News Flow. Journal of Business Finance and Accounting, 41(7-8), 791-830.
 
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate Governance in Emerging Economies: A Review of the Principal–Principal Perspective. Journal of Management Studies, 45(1), 196-222.