Testing Market Reaction On Stock Market Delisting In Russia

Cover Page

Cite item

Full Text

Abstract

This paper expands the available information on the effects of delisting in Russia, and represents a rare empirical analysis of the impact of external events on securities prices in this major global market. We seek to evaluate how stock prices of competing companies fluctuate around the dates of stock market delisting announcements and completion.

We analyse stock prices as correlated with company delisting events from 2004 to 2019 on 552 companies on the Russian MOEX Exchange. The event study methodology is used to evaluate the abnormal returns of rival companies close to relevant delisting dates. These data were checked for statistical significance using the standardised Patell residual test.

The results indicate a significant competitive effect on stock prices both on the dates of delisting announcement and on completion, with more significant returns close to announcement dates. These effects were found to influence the prospects not just of individual groups of companies, but of all market participants.

We may conclude from our results that delisting is not an event limited in effect to only one company, but impacts the industry as a whole, temporarily changing its value. As such, it will interest both shareholders and managers of public companies, and any participants of industries in which delisting occurs.

About the authors

E. M Rogova

HSE University

Author for correspondence.
Email: erogova@hse.ru

M. Belousova

PJSC MTS

Email: masha.belousova220597@gmail.com

References

  1. Baker M., Wurgler J. The equity share in new issues and aggregate stock returns. The Journal of Finance. 2000;55(5):2219–2257. doi: 10.1111/0022‑1082.00285
  2. Toktongaliev A.R., Chirkova E.V. Seasoned equity offerings effects. Korporativnye finansy = Journal of Corporate Finance Research. 2013;6(4):32–45. doi: 10.17323/j.jcfr.2073‑0438.6.4.2012.32‑45
  3. Gileva K. What is delisting on the exchange? Open Broker Journal. 2019. Available from: https://journal.open-broker.ru/economy/chto-takoe-delisting-na-birzhe/ (accessed on 28 Jan 2021)
  4. Mustaev R. Trend or coincidence: Why do Russian companies leave the exchange? Forbes. 2018. Available from: https://www.forbes.ru/finansy-i-investicii/364963-trend-ili-sluchaynost-pochemu-rossiyskie-kompanii-uhodyat-s-birzhi (accessed on 28 Jan 2021)
  5. Sangalova I. Leaving beautifully: What should an investor do in case of delisting? RBC Quote. 2020. Available from: https://quote.rbc.ru/news/training/5e398f399a79473f99614b8a (accessed on 28 Jan 2021)
  6. Shumway T., Warther V.A. The delisting bias in CRSP’s Nasdaq data and its implications for the size effect. The Journal of Finance. 1999;54(6):2361–2379
  7. Vinogradov I. Billionaires worldwide withdrew stock from stock exchanges. Vedomosti. 2020. Available from: https://www.vedomosti.ru/finance/articles/2020/09/21/840695-milliarderi-vivodyat (accessed on 2 Jan 2021)
  8. Sanger G.C., Peterson J.D. An empirical analysis of common stock delistings. Journal of Financial and Quantitative Analysis. 1990;25(2):261–272. doi: 10.2307/2330828
  9. Cheng L.T., McDonald J.E. Industry structure and ripple effects of bankruptcy announcements. Financial Review. 1996;31(4):783–807
  10. Teplova T.V., Demidov P.A. The information effect of bank loan loss provisions. Korporativnye finansy = Journal of Corporate Finance Research. 2017;11(3):59–78. doi: 10.17323/j.jcfr.2073‑0438.11.3.2017.59‑78
  11. Lang L.H., Stulz R. Contagion and competitive intra‑industry effects of bankruptcy announcements: An empirical analysis. Journal of Financial Economics. 1992;32(1):45–60
  12. Moshenskij S.Z. The rise of financial capitalism: Financial markets before the industrial era. Kiev: Planeta; 2016. 269 p. (In Russ.)
  13. Hodder J.E., Jackwerth J.C., Kolokolova O. Recovering delisting returns of hedge funds. Journal of Financial and Quantitative Analysis. 2014;49(3):797–815
  14. Djama C., Martinez I., Serve S. What do we know about delistings? A survey of the literature. THEMA Working Papers 2012‑38, Université de Cergy‑Pontoise; 2012. Available from: https://hal.archives-ouvertes.fr/hal-00937899/document
  15. Park J., Lee P., Park Y.W. Information effect of involuntary delisting and informed trading. Pacific‑Basin Finance Journal. 2014;30:251–269. doi: 10.1016/j.pacfin.2014.10.006
  16. Shumway T. The delisting bias in CRSP data. The Journal of Finance. 1997;52(1):327–340. doi: 10.1111/j.1540‑6261.1997.tb03818.x
  17. Macey J., O’Hara M., Pompilio D. Down and out in the stock market: The law and economics of the delisting process. The Journal of Law and Economics. 2008;51(4):683–713
  18. Donkin C. MegaFon shares pulled from Moscow Exchange. Mobile World Live. 2021. Available from: https://www.mobileworldlive.com/featured-content/top-three/megafon-shares-pulled-from-moscow-exchange (accessed on 1 Feb 2021)
  19. Pour E.K., Lasfer M. Why do companies delist voluntarily from the stock market? Journal of Banking & Finance. 2013;37(12):4850–4860. doi: 10.1016/j.jbankfin.2013.08.022
  20. Bharath S.T., Dittmar A.K. Why do firms use private equity to opt out of public markets? The Review of Financial Studies. 2010;23(5):1771–1818. doi: 10.1093/rfs/hhq016
  21. Martinez I., Serve S. The delisting decision: The case of buyout offer with squeeze‑out (BOSO). International Review of Law and Economics. 2011;31(4):228–239. doi: 10.1016/j.irle.2011.07.001
  22. Weir C., Laing D., Wright M. Undervaluation, private information, agency costs and the decision to go private. Applied Financial Economics. 2005;15(13):947–961. doi: 10.1080/09603100500278221
  23. Halpern P., Kieschnick R., Rotenberg W. On the heterogeneity of leveraged going‑private transactions. The Review of Financial Studies. 1999;12(2):281–309
  24. Wright M., Amess K., Weir C., Girma S. Private equity and corporate governance: Retrospect and prospect. Corporate Governance: An International Review. 2009;17(3):353–375
  25. Martinez I., Serve S. Reasons for delisting and consequences: A literature review and research agenda. Journal of Economic Surveys. 2017;31(3):733–770. doi: 10.1111/joes.12170
  26. Hostak P., Lys T., Yang Y.G. An examination of the impact of the Sarbanes–Oxley Act on the attractiveness of U.S. capital markets for foreign firms. Review of Accounting Studies. 2013;18(2):522–559. doi: 10.1007/s11142-013-9222-2
  27. Engel E., Hayes R.M., Wang X. The Sarbanes–Oxley Act and firms’ going‑private decisions. Journal of Accounting and Economics. 2007;44(1–2):116–145. doi: 10.1016/j.jacceco.2006.07.002
  28. Dreving S.R., Khrustova L.E. Delisting of Russian companies from the stock exchange: Causes and consequences. Ekonomika. Nalogi. Pravo = Economics, Taxes & Law. 2020;13(6):86–95. doi: 10.26794/1999-849X-2020-13-6-86-95
  29. Leuz C., Triantis A., Wang T.Y. Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations. Journal of Accounting and Economics. 1998;45(2–3):181–228. doi: 10.1016/j.jacceco.2008.01.001
  30. Becker B., Pollet J. The decision to go private. Working paper, Emory University; 2008. Available from: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.694.6932&rep=rep1&type=pdf
  31. Liao M.‑Y. Corporate governance and delisting: Evidence from emerging markets. Journal of Accounting and Finance. 2020;20(2):178–191. doi: 10.33423/jaf.v20i2.2818
  32. Hu G., Lin J.C., Wong O., Yu M. Why have many US‑listed Chinese firms announced delisting recently? Global Finance Journal. 2019;41(C):13–31. doi: 10.1016/j.gfj.2018.10.002
  33. Cotei C., Farhat J. Informational externalities of initial public offerings: Does venture capital backing matter? Journal of Economics and Finance. 2013;37(1):80–99
  34. Hsu H.C., Reed A.V., Rocholl J. The new game in town: Competitive effects of IPOs. The Journal of Finance. 2010;65(2):495–528. doi: 10.1111/j.1540‑6261.2009.01542.x
  35. McGilvery A., Faff R., Pathan S. Competitive valuation effects of Australian IPOs. International Review of Financial Analysis. 2012;24(C):74–83. doi: 10.1016/j.irfa.2012.08.002
  36. Laux P., Starks L.T., Yoon P.S. The relative importance of competition and contagion in intra‑industry information transfers: An investigation of dividend announcements. Financial Management. 1998;27(3):5–16
  37. Slovin M.B., Sushka M.E., Polonchek J.A. Informational externalities of seasoned equity issues: Differences between banks and industrial firms. Journal of Financial Economics. 1992;32(1):87–101. doi: 10.1016/0304‑405X(92)90026‑T
  38. Cai K., Lee H., Valero M. The roles of the information environment and the stock price performance of foreign firms in their decision to delist from US exchanges. Journal of Multinational Financial Management. 2018;47:1–13. doi: 10.1016/j.mulfin.2018.09.002
  39. Liu S., Stowe J.D., Hung K. Why US firms delist from the Tokyo Stock Exchange: An empirical analysis. International Review of Economics & Finance. 2012;24:62–70. doi: 10.1016/j.iref.2011.12.001
  40. Andrukovich P.E. The dynamics of stock price during their listing and delisting. Zhurnal Novoj jekonomicheskoj associacii = Journal of the New Economic Association. 2019;4(44):50–76. doi: 10.31737/2221‑2264‑2019‑44‑4‑2
  41. Beaver W., McNichols M., Price R. Delisting returns and their effect on accounting-based market anomalies. Journal of Accounting and Economics. 2007;43(2–3):341–368. doi: 10.1016/j.jacceco.2006.12.002
  42. Braun M., Larrain B. Do IPOs affect the prices of other stocks? Evidence from emerging markets. The Review of Financial Studies. 2009;22(4):1505–1544. doi: 10.1093/rfs/hhn025
  43. MacKinlay A.C. Event studies in economics and finance. Journal of Economic Literature. 1997;35(1):13–39
  44. Peterson P.P. Event studies: A review of issues and methodology. Quarterly Journal of Business and Economics. 1989;? (page numbers missing in original)
  45. Agrawal J., Kamakura W.A. The economic worth of celebrity endorsers: An event study analysis. Journal of Marketing. 1995;59(3):56–62
  46. McWilliams A., Siegel D. Event studies in management research: Theoretical and empirical issues. Academy of Management Journal. 1997;40(3):626–657
  47. Fernandez V. The CAPM and value at risk at different time‑scales. International Review of Financial Analysis. 2006;15(3):203–219. doi: 10.1016/j.irfa.2005.02.004
  48. Chen M.H. Risk and return: CAPM and CCAPM. The Quarterly Review of Economics and Finance. 2003;43(2):369–393. doi: 10.1016/S1062‑9769(02)00125‑4
  49. Suraj E.S., Jeena A., Nitha K.P. Is CAPM still alive for Sensex stocks in Indian stock market? An empirical analysis. International Journal of Management. 2020;11(4):210–220. doi: 10.34218/IJM.11.4.2020.022
  50. Dranev Y.Y., Nurdinova Y.S., Redkin V.A., Fomkina S.A. Cost of capital estimation models in emerging markets. Korporativnye finansy = Journal of Corporate Finance Research. 2012;6(2):107–117. doi: 10.17323/j.jcfr.2073‑0438.6.2.2012.107‑117
  51. Hendricks K., Porter R.H., Boudreau B. Information, returns, and bidding behavior in OCS auctions: 1954–1969. The Journal of Industrial Economics. 1987;35(4):517–542. doi: 10.2307/2098586
  52. Patell J.M. Corporate forecasts of earnings per share and stock price behavior: Empirical test. Journal of Accounting Research. 1976;14(2):246–276. doi: 10.2307/2490543
  53. Boehmer E., Masumeci J., Poulsen A.B. Event study methodology under conditions of event-induced variance. Journal of Financial Economics. 1991;30(2):253–272
  54. Bernard V.L., Thomas J.K. Evidence that stock prices do not fully reflect the implications of current earnings for future earnings. Journal of Accounting and Economics. 1990;13(4):305–340. doi: 10.1016/0165‑4101(90)90008‑R
  55. Collins D.W., Dent W.T. A comparison of alternative testing methodologies used in capital market research. Journal of Accounting Research. 1984;22(1):48–84. doi: 10.2307/2490701
  56. Kothari S.P., Warner J.B. Econometrics of event studies. In: Eckbo B.E. (ed.), Handbook of Corporate Finance: Empirical Corporate Finance, Volume A (Handbooks in Finance). Elsevier/North‑Holland; 2007:3–36
  57. Brown S.J., Warner J.B. Measuring security price performance. Journal of Financial Economics. 1980;8(3):205–258. DOI: https://doi.org/10.1016/0304-405X(80)90002-1

Supplementary files

Supplementary Files
Action
1. JATS XML
Download

Copyright (c) 2021 Rogova E.M., Belousova M.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.