Hadi Amiri, Ph.D. ,
Associate Professor
Department Of EconomyFaculty Of Administrative Sciences And Economics
Address
University of Isfahan
Azadi square
Isfahan, Iran
Postal Code : 8174673441
Research Output
Articles
2024
Publication Date: 2024/04/20
پیشرفت های حسابداری (20089988)(1)pp. 111-141
The purpose of this research was to analyze the impact of investors' sentiments on the volatility of portfolio returns of companies with difficult pricing characteristics compared to their opposite companies. Information asymmetry leads to disagreements about pricing. Companies with difficult pricing are companies that, is not possible to determine their price correctly. Investors are expected to be more involved in the emotional climate than the shares of these companies For this purpose, hypotheses were designed. A sample of 173 companies was selected from the TSE in 2011 and 2023 and the hypotheses were investigated through the formation of a stock portfolio with monthly data. Three criteria were used to determine companies with difficult pricing characteristics, including size, book-to-market ratio, and illiquidity. The findings showed that investors' sentiments had an asymmetric effect on the volatility of portfolio returns of companies with difficult pricing characteristics and conflicting companies. So that the measures of the ratio of book value to market value and illiquidity show the effect of emotions on the portfolio of companies with difficult pricing more than the opposite companies, while the size measure shows this effect for the portfolio of companies with opposite pricing more than the companies with difficult pricing. . Therefore, it can be concluded that at least for companies with high illiquidity and high book value to market ratio, investors' emotions have a double effect on yield volatility, and investors should be cautious and take into account the emotional atmosphere in the trading of such stocks.
2020
Publication Date: 2020/12/21
پیشرفت های حسابداری (20089988)(2)pp. 65-102
Journal of Accounting Advances, (2020) 12(1):
DOI: 10.22099/JAA.2021.39285.2077
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
Developing Fama and French Multi-Factor Pricing Model Using a Fundamental Factor Based on Accounting Characteristics
Sanaz Aalamifar1, Abdollah Khani2*, Hadi Amir3
1. Ph.D. Candidate, Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Iran. sanazaalamifar@ase.ui.ac.ir
Corresponding author, Associate Prof., Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran. a.khani@ase.ui.ac.ir
Assistant Prof., Department of Economic, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran. h.amiri@ase.ui.ac.ir
ARTICLE INF
ABSTRACT
Received: 2020-12-21
Accepted: 2021-04-03
The purpose of the present research is to introduce a fundamental factor, based on related accounting characteristics (including earnings to price, book to price, sales growth rate, accruals, investment and growth in net operating assets), as a factor in the structure of Fama and French asset pricing model. The mentioned factor has been deducted from consumption theory and accounting principles and assumptions. In order to test the hypotheses, data of 345 companies listed in the Tehran Stock Exchange (TSE) and Iran Farabourse market, during the period 2006 to 2020, were used. To evaluate the performance of the multi-factor asset pricing model, test assets were ranked in two categories (once considering expected return characteristic, and once without considering the company’s expected return characteristic). In the following, using time series regression approach, the performance of augmented multifactor asset pricing models and corresponding conventional ones are compared. The results of this research showed that development of the research models with the fundamental factor based on mentioned accounting characteristics, can lead to improving the performance of these multi-factor models in explaining the variation in (expected) stock returns, and the test assets that considered the company’s expected return performed better compared to those that did not. The findings of this study indicate that the information in the financial statements has information content and can play an undeniable role in determining the expected return.
* Corresponding author:
Abdollah Khani
Associate Prof., Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran.
E-mail: a.khani@ase.ui.ac.ir
1-Introduction
Identifying the correct asset pricing model has long been an important topic in the thematic literature of financial economics. Such a model not only explains stock returns, but also increases the ability to predict abnormal returns. The first models for estimating returns date back to the 1960s, when Markowitz’s (1952) new theory of securities attracted the attention of researchers. The first model for estimating returns was the capital asset pricing model (CAPM) which was presented by William Sharp (1964). In his research, William Sharp showed that return on asset was a function of line of market risk premium. But from 1975 to 1990, deviations and anomalies related to the CAPM model gradually became apparent. Following the recognition of these anomalies in accounting, in this study, based on the research of Penman and Zhou (2018), a fundamental factor based on accounting characteristics is introduced. For this purpose, consumption theory and accounting principles and assumptions will be used for initial identification; and empirical tests will be used for final identification of accounting characteristics that affect earnings growth and expected returns. Then these identified characteristics are summarized in a factor called the fundamental factor. Therefore, the purpose of this study is to evaluate the possibility of improving the performance of the asset pricing factor models in explaining the stock returns by adding a fundamental factor based on accounting characteristics. The hypothesis, methods, result and discussion and conclusion have been explained below.
2-Hypothesis
The aim of this research is to introduce a fundamental factor based on accounting characteristics as a factor in the structure of the Fama and French asset pricing models. For this purpose, data of 345 companies, listed in the Tehran Stock Exchange, during the period 2006 to 2020 have been used. In order to achieve the objectives of this research, the following hypothesis are developed:
H1: Adding a fundamental factor, based on accounting characteristics, to Fama and French three-factor model, improves its performance in explaining the stock returns.
H2: Adding a fundamental factor, based on accounting characteristics, to Carhart four-factor model, improves its performance in explaining the stock returns.
H3: Adding a fundamental factor, based on accounting characteristic, to Fama and French five-factor model, improves its performance in explaining the stock returns.
H4: Adding a fundamental factor, based on accounting characteristics, to Fama and French six-factor model, improves its performance in explaining stock returns.
3- Methods
This is an applied research in terms of purpose and an inferential and descriptive research, in terms of method. For data analysis and hypothesis testing, the data have been collected from 345 companies listed in the Tehran Stock Exchange for a period of 15 years (2006 to 2020). For initial calculations, the Excel and Ox Metrics software tools, and for the final analysis, Eviews and State software tools were used.
4- Results
The results of this research showed that a research model with fundamental factor, based on accounting characteristics, has a better performance in explaining the stock returns compared to the corresponding multifactor pricing models; and the tests that considered the company’s expected return, performed better compared to those that did not.
5- Discussion and Conclusion
Findings of this research indicate that adding a fundamental factor based on accounting characteristics to Fama and French three-factor, Carhart four-factor, Fama and French five-factor, and Fame and French six-factor models, improves their performance in explaining the stock returns. In other words, developing a model with a fundamental factor, based on accounting characteristics, can lead to an improvement in the asset’s pricing model. This is a result of all the efforts that have been made since the time of Sharpe (1964). In addition, the research findings show that despite the research and efforts that have been made in the field of assets’ pricing, it is still possible to further develop this model from other angles in the financial field.
DOI: 10.22099/JAA.2021.39285.2077
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
Developing Fama and French Multi-Factor Pricing Model Using a Fundamental Factor Based on Accounting Characteristics
Sanaz Aalamifar1, Abdollah Khani2*, Hadi Amir3
1. Ph.D. Candidate, Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Iran. sanazaalamifar@ase.ui.ac.ir
Corresponding author, Associate Prof., Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran. a.khani@ase.ui.ac.ir
Assistant Prof., Department of Economic, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran. h.amiri@ase.ui.ac.ir
ARTICLE INF
ABSTRACT
Received: 2020-12-21
Accepted: 2021-04-03
The purpose of the present research is to introduce a fundamental factor, based on related accounting characteristics (including earnings to price, book to price, sales growth rate, accruals, investment and growth in net operating assets), as a factor in the structure of Fama and French asset pricing model. The mentioned factor has been deducted from consumption theory and accounting principles and assumptions. In order to test the hypotheses, data of 345 companies listed in the Tehran Stock Exchange (TSE) and Iran Farabourse market, during the period 2006 to 2020, were used. To evaluate the performance of the multi-factor asset pricing model, test assets were ranked in two categories (once considering expected return characteristic, and once without considering the company’s expected return characteristic). In the following, using time series regression approach, the performance of augmented multifactor asset pricing models and corresponding conventional ones are compared. The results of this research showed that development of the research models with the fundamental factor based on mentioned accounting characteristics, can lead to improving the performance of these multi-factor models in explaining the variation in (expected) stock returns, and the test assets that considered the company’s expected return performed better compared to those that did not. The findings of this study indicate that the information in the financial statements has information content and can play an undeniable role in determining the expected return.
* Corresponding author:
Abdollah Khani
Associate Prof., Department of Accounting, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran.
E-mail: a.khani@ase.ui.ac.ir
1-Introduction
Identifying the correct asset pricing model has long been an important topic in the thematic literature of financial economics. Such a model not only explains stock returns, but also increases the ability to predict abnormal returns. The first models for estimating returns date back to the 1960s, when Markowitz’s (1952) new theory of securities attracted the attention of researchers. The first model for estimating returns was the capital asset pricing model (CAPM) which was presented by William Sharp (1964). In his research, William Sharp showed that return on asset was a function of line of market risk premium. But from 1975 to 1990, deviations and anomalies related to the CAPM model gradually became apparent. Following the recognition of these anomalies in accounting, in this study, based on the research of Penman and Zhou (2018), a fundamental factor based on accounting characteristics is introduced. For this purpose, consumption theory and accounting principles and assumptions will be used for initial identification; and empirical tests will be used for final identification of accounting characteristics that affect earnings growth and expected returns. Then these identified characteristics are summarized in a factor called the fundamental factor. Therefore, the purpose of this study is to evaluate the possibility of improving the performance of the asset pricing factor models in explaining the stock returns by adding a fundamental factor based on accounting characteristics. The hypothesis, methods, result and discussion and conclusion have been explained below.
2-Hypothesis
The aim of this research is to introduce a fundamental factor based on accounting characteristics as a factor in the structure of the Fama and French asset pricing models. For this purpose, data of 345 companies, listed in the Tehran Stock Exchange, during the period 2006 to 2020 have been used. In order to achieve the objectives of this research, the following hypothesis are developed:
H1: Adding a fundamental factor, based on accounting characteristics, to Fama and French three-factor model, improves its performance in explaining the stock returns.
H2: Adding a fundamental factor, based on accounting characteristics, to Carhart four-factor model, improves its performance in explaining the stock returns.
H3: Adding a fundamental factor, based on accounting characteristic, to Fama and French five-factor model, improves its performance in explaining the stock returns.
H4: Adding a fundamental factor, based on accounting characteristics, to Fama and French six-factor model, improves its performance in explaining stock returns.
3- Methods
This is an applied research in terms of purpose and an inferential and descriptive research, in terms of method. For data analysis and hypothesis testing, the data have been collected from 345 companies listed in the Tehran Stock Exchange for a period of 15 years (2006 to 2020). For initial calculations, the Excel and Ox Metrics software tools, and for the final analysis, Eviews and State software tools were used.
4- Results
The results of this research showed that a research model with fundamental factor, based on accounting characteristics, has a better performance in explaining the stock returns compared to the corresponding multifactor pricing models; and the tests that considered the company’s expected return, performed better compared to those that did not.
5- Discussion and Conclusion
Findings of this research indicate that adding a fundamental factor based on accounting characteristics to Fama and French three-factor, Carhart four-factor, Fama and French five-factor, and Fame and French six-factor models, improves their performance in explaining the stock returns. In other words, developing a model with a fundamental factor, based on accounting characteristics, can lead to an improvement in the asset’s pricing model. This is a result of all the efforts that have been made since the time of Sharpe (1964). In addition, the research findings show that despite the research and efforts that have been made in the field of assets’ pricing, it is still possible to further develop this model from other angles in the financial field.
Publication Date: 2020/12/21
پیشرفت های حسابداری (20089988)(2)pp. 191-229
Journal of Accounting Advances, (2020) 12(1):
DOI: 10.22099/JAA.2021.38010.2046
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
Effect of Risk Disclosure and its Types on Crash Stock Price Risk
Seyedeh Zahra Tabatabaei1, Seyed Abbas Hashemi2*, Hadi Amiri3
PhD student in Accounting, Esfahan University, Esfahan, Iran. z.tabatabaei@ase.ui.ac.ir
2. Associate Professor of Accounting, Esfahan University, Esfahan, Iran. a.hashemi@ase.ui.ac.ir
3. Assistant Professor of Economics, Esfahan University, Esfahan, Iran. h.amiri2@ase.ui.ir
ARTICLE INF
ABSTRACT
Received: 2020-08-09
Accepted: 2021-01-18
The act of hiding and accumulating the bad news within the company by management has led to the creation of massive negative information. The sudden outburst of this news to the market would cause a stock price crash. In this regard, information disclosure about the risks faced by the company can lead to transparency of information and thus reduce the stock price crash risk. The goal of this research is to survey the effect of disclosure of risk and its types on stock price crash risk. In this study, 548 company-years during the period from 2011 to 2019 have been selected using systematic deletion method and research hypotheses have been tested using regression based on panel data with fixed effects. The results indicate that the disclosure of total risk has a negative and significant effect on the stock price crash risk. types of risk disclosures including financial risk, non-financial operating risk and strategic non-financial risk have a negative and significant effect on stock price crash risk.
* Corresponding author:
Seyed Abbas Hashemi
Associate Professor of Accounting, Esfahan University, Esfahan, Iran.
Email: a.hashemi@ase.ui.ac.ir
1- Introduction
In order to protect the manager's interests, attempts are made to conceal negative news inside the company and not disclose it. The act of hiding the bad news and accumulating it within the company has led to the creation of a mass of negative information. The sudden outburst of such news to the market will cause a dramatic decrease in stock prices. In this regard, disclosure of information about the risks faced by the company can lead to transparency of information and thus reduce the stock price crash risk. The aim of this study is to investigate the effect of risk disclosure, including financial risk, non-financial operating risk and strategic non-financial risk on stock price crash risk.
2- Hypothesis
Based on what was stated in the theoretical foundations of the research, one of the factors affecting the stock price crash risk is the disclosure of various risks. If the disclosure of the risks to which the company is exposed has informational content, it is expected to reduce the stock price crash risk. Therefore, the research hypotheses were formulated as follows:
H1: Disclosure of total risk by the company has a negative impact on the stock price crash risk.
H2: Disclosure of financial risk by the company has a negative impact on the stock price crash risk.
H3: Disclosure of non-financial operating risk by the company has a negative impact on the stock price crash risk.
H4: Disclosure of strategic non-financial risk by the company has a negative impact on the stock price crash risk.
3- Methods
Since the results of this research can be used in the decisions of users of financial statements, the purpose of this research is categorized as an applicable one. Besides, in terms of nature, it is included in descriptive research groups. It is also based on real information about the financial statements of companies listed on the Tehran Stock Exchange, which can be generalized to the entire statistical community by inductive method. As the goal of this research is to analyze the effect of exposing different types of risk on stock price crash risk, so it is in the field of post-event studies. In this research, the achievement of results has been done by testing the available data, so the present study is considered in the group of positive research.
4- Results
The first hypothesis of the research based on the negative and significant effect of total risk disclosure on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the risk disclosure in financial reporting, the lower the stock price crash risk. The second hypothesis of the research based on the negative and significant effect of disclosure of financial risk on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the level of disclosure of financial risk in financial reporting, the lower the stock price crash risk. The third hypothesis of research based on the negative and significant effect of non-financial operational risk disclosure on stock price crash risk was not rejected. The results of this hypothesis show that as the amount of non-financial operational risk disclosure in financial reporting increases, the stock price crash risk will decrease. The fourth hypothesis of the research based on the negative and significant effect of disclosure of strategic non-financial risk on stock price crash risk was not rejected. The results of this hypothesis reveals that, as the level of disclosure of strategic non-financial risk in financial reporting increases, the stock price crash risk will decrease.
5- Conclusion
The results of this reserach suggest that the disclosure of risk and its types in the Report of Directors has information content. As a result of more timely disclosure of information about the good and bad news of the company and reducing the motivation of managers to accumulate bad news and publish this news to the market, the stock price crash risk is reduced. Also, among the types of risk disclosure, using both negative skewness of stock returns criteria and down-to-up volatility, disclosure of non-financial operational risk leads to a further reduction in the stock price crash risk.
DOI: 10.22099/JAA.2021.38010.2046
Journal of Accounting Advances (JAA)
Journal homepage: www.jaa.shirazu.ac.ir/?lang=en
Effect of Risk Disclosure and its Types on Crash Stock Price Risk
Seyedeh Zahra Tabatabaei1, Seyed Abbas Hashemi2*, Hadi Amiri3
PhD student in Accounting, Esfahan University, Esfahan, Iran. z.tabatabaei@ase.ui.ac.ir
2. Associate Professor of Accounting, Esfahan University, Esfahan, Iran. a.hashemi@ase.ui.ac.ir
3. Assistant Professor of Economics, Esfahan University, Esfahan, Iran. h.amiri2@ase.ui.ir
ARTICLE INF
ABSTRACT
Received: 2020-08-09
Accepted: 2021-01-18
The act of hiding and accumulating the bad news within the company by management has led to the creation of massive negative information. The sudden outburst of this news to the market would cause a stock price crash. In this regard, information disclosure about the risks faced by the company can lead to transparency of information and thus reduce the stock price crash risk. The goal of this research is to survey the effect of disclosure of risk and its types on stock price crash risk. In this study, 548 company-years during the period from 2011 to 2019 have been selected using systematic deletion method and research hypotheses have been tested using regression based on panel data with fixed effects. The results indicate that the disclosure of total risk has a negative and significant effect on the stock price crash risk. types of risk disclosures including financial risk, non-financial operating risk and strategic non-financial risk have a negative and significant effect on stock price crash risk.
* Corresponding author:
Seyed Abbas Hashemi
Associate Professor of Accounting, Esfahan University, Esfahan, Iran.
Email: a.hashemi@ase.ui.ac.ir
1- Introduction
In order to protect the manager's interests, attempts are made to conceal negative news inside the company and not disclose it. The act of hiding the bad news and accumulating it within the company has led to the creation of a mass of negative information. The sudden outburst of such news to the market will cause a dramatic decrease in stock prices. In this regard, disclosure of information about the risks faced by the company can lead to transparency of information and thus reduce the stock price crash risk. The aim of this study is to investigate the effect of risk disclosure, including financial risk, non-financial operating risk and strategic non-financial risk on stock price crash risk.
2- Hypothesis
Based on what was stated in the theoretical foundations of the research, one of the factors affecting the stock price crash risk is the disclosure of various risks. If the disclosure of the risks to which the company is exposed has informational content, it is expected to reduce the stock price crash risk. Therefore, the research hypotheses were formulated as follows:
H1: Disclosure of total risk by the company has a negative impact on the stock price crash risk.
H2: Disclosure of financial risk by the company has a negative impact on the stock price crash risk.
H3: Disclosure of non-financial operating risk by the company has a negative impact on the stock price crash risk.
H4: Disclosure of strategic non-financial risk by the company has a negative impact on the stock price crash risk.
3- Methods
Since the results of this research can be used in the decisions of users of financial statements, the purpose of this research is categorized as an applicable one. Besides, in terms of nature, it is included in descriptive research groups. It is also based on real information about the financial statements of companies listed on the Tehran Stock Exchange, which can be generalized to the entire statistical community by inductive method. As the goal of this research is to analyze the effect of exposing different types of risk on stock price crash risk, so it is in the field of post-event studies. In this research, the achievement of results has been done by testing the available data, so the present study is considered in the group of positive research.
4- Results
The first hypothesis of the research based on the negative and significant effect of total risk disclosure on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the risk disclosure in financial reporting, the lower the stock price crash risk. The second hypothesis of the research based on the negative and significant effect of disclosure of financial risk on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the level of disclosure of financial risk in financial reporting, the lower the stock price crash risk. The third hypothesis of research based on the negative and significant effect of non-financial operational risk disclosure on stock price crash risk was not rejected. The results of this hypothesis show that as the amount of non-financial operational risk disclosure in financial reporting increases, the stock price crash risk will decrease. The fourth hypothesis of the research based on the negative and significant effect of disclosure of strategic non-financial risk on stock price crash risk was not rejected. The results of this hypothesis reveals that, as the level of disclosure of strategic non-financial risk in financial reporting increases, the stock price crash risk will decrease.
5- Conclusion
The results of this reserach suggest that the disclosure of risk and its types in the Report of Directors has information content. As a result of more timely disclosure of information about the good and bad news of the company and reducing the motivation of managers to accumulate bad news and publish this news to the market, the stock price crash risk is reduced. Also, among the types of risk disclosure, using both negative skewness of stock returns criteria and down-to-up volatility, disclosure of non-financial operational risk leads to a further reduction in the stock price crash risk.
2018
Publication Date: 2018/08/23
پیشرفت های حسابداری (20089988)(1)pp. 64-97
Introduction
There is an ambiguity about future state of the firms and capital market in conditions of uncertainty. In such a situation, the arrival of any information signal such as earnings announcement may reduce uncertainty leading to a revision of the previous beliefs of investors. Uncertainty could be divided into two groups: market uncertainty and information uncertainty. Investors’ reaction to earnings announcement may be different in these two situations. Under high market uncertainty, firms’ earnings announcement as an information signal may have a greater impact on investors' beliefs and, as a result, leads to more investors’ reaction to firms’ earnings announcement. However, more accurate information signals have a stronger impact on investors' beliefs. In other words, there is under reaction to earnings announcement, when announced earnings contain high uncertainty. Therefore, this study attempts to investigate investors’ reaction to earnings announcement with regards to market and information uncertainty. In addition, this study examines simultaneous effect of these two types of uncertainty on the investors 'reaction to earnings announcement.
Hypotheses
According to the literature, the research hypotheses include:
H1: Under high market uncertainty, investors’ reaction to earnings announcement is higher than low market uncertainty.
H2: Under high information uncertainty, investors’ reaction to earnings announcement is less than low information uncertainty.
H3: Investors’ reaction to earnings announcement under market uncertainty decreases with an increase in the level of information uncertainty.
Methods
In this study, in order to calculate the variables and test the hypotheses, required data was collected from the audited financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 162 listed companies in Tehran Stock Exchange from 2005 to 2015. Market uncertainty was measured by the standard deviation of daily market returns during the one month prior to the firms’ earnings announcement. Information uncertainty was calculated by two criteria including quality information and cash flows volatility based on matched-firm design. Panel data method and Wald test were used to estimate models and test of hypotheses, respectively.
Results
Results showed the higher market uncertainty (compared to lower uncertainty), the more investors' response to firms’ earnings announcements. Results also showed, the higher information uncertainty (compared to lower uncertainty), the less investors' response to firms’ earnings announcements. Moreover simultaneous analysis of the "market and information" uncertainty on the investors' reactions to earnings announcements showed although investors' responses to earnings announcements decrease on the high information uncertainty situation, yet unexpectedly, the coefficient of unexpected earnings in the high market uncertainty is less than its coefficient in the low market uncertainty.
Discussion and Conclusion
Previous studies often focus on the market uncertainty or the information uncertainty. There are few studies that examine the simultaneous effect of these two types of uncertainty. Therefore, the aim of this study was investigating investors’ reaction to earnings announcement considering both market and information uncertainty. In the first hypothesis, we investigated investors’ reaction to earnings announcement, when market uncertainty is high. Results showed, investors show more reaction to earnings announcement under high market uncertainty. Therefore, the first hypothesis is not rejected. Results of the second hypothesis indicated when firms’ information such as accounting earnings is ambiguous and uncertain, there are less investors’ reaction to earnings announcement and the second hypothesis is also not rejected. Moreover, simultaneous analysis of both uncertainty on the investors' reaction showed although investors' responses to earnings announcements decrease by an increase in the information uncertainty, but unexpectedly, investors show less reaction, when there is a high market uncertainty. It may be due to behavioral bias or lack of investor knowledge for analyzing information. Therefore, the third hypothesis is rejected.
There is an ambiguity about future state of the firms and capital market in conditions of uncertainty. In such a situation, the arrival of any information signal such as earnings announcement may reduce uncertainty leading to a revision of the previous beliefs of investors. Uncertainty could be divided into two groups: market uncertainty and information uncertainty. Investors’ reaction to earnings announcement may be different in these two situations. Under high market uncertainty, firms’ earnings announcement as an information signal may have a greater impact on investors' beliefs and, as a result, leads to more investors’ reaction to firms’ earnings announcement. However, more accurate information signals have a stronger impact on investors' beliefs. In other words, there is under reaction to earnings announcement, when announced earnings contain high uncertainty. Therefore, this study attempts to investigate investors’ reaction to earnings announcement with regards to market and information uncertainty. In addition, this study examines simultaneous effect of these two types of uncertainty on the investors 'reaction to earnings announcement.
Hypotheses
According to the literature, the research hypotheses include:
H1: Under high market uncertainty, investors’ reaction to earnings announcement is higher than low market uncertainty.
H2: Under high information uncertainty, investors’ reaction to earnings announcement is less than low information uncertainty.
H3: Investors’ reaction to earnings announcement under market uncertainty decreases with an increase in the level of information uncertainty.
Methods
In this study, in order to calculate the variables and test the hypotheses, required data was collected from the audited financial statements and its footnotes of listed companies in the Tehran Stock Exchange and the existing databases including “Rahavard Novin” and “Codal”. The sample of this study consists of 162 listed companies in Tehran Stock Exchange from 2005 to 2015. Market uncertainty was measured by the standard deviation of daily market returns during the one month prior to the firms’ earnings announcement. Information uncertainty was calculated by two criteria including quality information and cash flows volatility based on matched-firm design. Panel data method and Wald test were used to estimate models and test of hypotheses, respectively.
Results
Results showed the higher market uncertainty (compared to lower uncertainty), the more investors' response to firms’ earnings announcements. Results also showed, the higher information uncertainty (compared to lower uncertainty), the less investors' response to firms’ earnings announcements. Moreover simultaneous analysis of the "market and information" uncertainty on the investors' reactions to earnings announcements showed although investors' responses to earnings announcements decrease on the high information uncertainty situation, yet unexpectedly, the coefficient of unexpected earnings in the high market uncertainty is less than its coefficient in the low market uncertainty.
Discussion and Conclusion
Previous studies often focus on the market uncertainty or the information uncertainty. There are few studies that examine the simultaneous effect of these two types of uncertainty. Therefore, the aim of this study was investigating investors’ reaction to earnings announcement considering both market and information uncertainty. In the first hypothesis, we investigated investors’ reaction to earnings announcement, when market uncertainty is high. Results showed, investors show more reaction to earnings announcement under high market uncertainty. Therefore, the first hypothesis is not rejected. Results of the second hypothesis indicated when firms’ information such as accounting earnings is ambiguous and uncertain, there are less investors’ reaction to earnings announcement and the second hypothesis is also not rejected. Moreover, simultaneous analysis of both uncertainty on the investors' reaction showed although investors' responses to earnings announcements decrease by an increase in the information uncertainty, but unexpectedly, investors show less reaction, when there is a high market uncertainty. It may be due to behavioral bias or lack of investor knowledge for analyzing information. Therefore, the third hypothesis is rejected.
2021
Publication Date: 2021
Water Policy (13667017)23(4)pp. 930-945
Population growth, along with climate change, has exacerbaed the water crisis in local communities. The simplest and quickest response of governments to such problems is direct intervention in local governance. Such solutions are usually proposed without regarding the indigenous knowledge of the local people. These also include top-down policies on water issues, which disrupt local institutional arrangements and eliminate the possibility of collective action by stakeholders in reaching an agreement. A case study of one of the water basins in Chaharmahal Bakhtiari in Iran (the Gorgak River in Sureshjan city) using an institutional analysis and development (IAD) framework shows that in the past, people acted collectively to solve the asymmetric distribution and drought problem. But government intervention, which initially sought to improve water conditions, has disrupted the region s institutional arrangements and power asymmetries between exploiters. Our study used the IAD framework to examine changes in institutional arrangements due to the introduction of technology and government intervention by the game theory. It clarifies that government intervention in local institutional arrangements, even if designed with the intention of improving conditions, may lead to greater inequality due to disregarding physical and social conditions and local knowledge. This inequality can eventually worsen the situation. © 2021 IWA Publishing. All rights reserved.