The impact of leverage on stock returns in the hospitality sector: evidence from the UK

This paper examines the relation between capital structure and abnormal returns for the UK hospitality sector by using an investment strategy based on hospitality firms’ capital structure. We find that abnormal returns are higher, 0.53 percent per annum, for medium leverage hospitality firms, and it can be increased up to 0.91 percent by investing in medium leverage and low price-to-book value firms. The findings raise an important issue for the hospitality sector as the firms in this sector are continually aiming to raise external finance to fund expansion. This is a unique situation when compared to other sectors in the economy whereby investors earn higher abnormal returns when investing in low levered firms (Muradoglu and Sivaprasad, 2012a)

Home bias persistence in foreign direct investments

The purpose of this paper is to analyse the issues related to home bias and foreign direct investments (FDIs). We study the role of physical, cultural, and institutional distances from home on FDI decisions taken by corporations to assess whether the globalization of the past two decades has reduced their influence. Using the ‘home bias’ framework from the finance literature and the gravity model from the economics literature, we utilize a large sample of both developed and emerging markets, using FDI flows of 6263 unique bilateral country pairs over a 30-year period. We find strong empirical evidence of persistent home bias in FDI outflows, and we show that not only physical distance but also cultural and institutional similarities between host and source countries remain a decisive factor in foreign corporate investment decisions. We also show that such home bias is persistent over time and is observed around the world

Herding in foreign direct investment

This paper, to our knowledge, is the first to examine herding in foreign direct investment (FDI). We investigate it from two perspectives, first the number of countries investing in the host country and then the dollar volumes of those investments. Our results provide strong evidence of herding in FDI. We also show herding in the divestures of these investors. We show that herding in FDI is related to host country characteristics and governance parameters

Efficiency of the Turkish stock exchange with respect to monetary variables: A cointegration analysis

In this study, we test the semistrong form of the efficient market hypothesis in Turkey by using the recently developed techniques in time series econometrics, namely unit roots and cointegration. The long run relationship between stock prices and inflation is investigated by assuming the possible existence of a proxy effect. Conclusions are made as to the efficiency of the Turkish Stock Exchange and its possible implications for investors. To our knowledge, this is among the pioneering studies conducted in an emerging market that uses an updated econometric methodology to allow for an analysis of long run steady state properties together with short run dynamics

Capital structure and abnormal returns

This paper examines the relation between capital structure and abnormal returns for UK equities. A firm's industry matters when examining this relation. Abnormal returns decline in firm gearing, however, abnormal returns increase as the average industry gearing in a risk class increases. Separating the average level of external financing in an industry from that in a particular firm is important. This study focuses on industry characteristics. Firms in nonregulated and competitive industries with low concentration ratios exhibit this behavior. In contrast, in the utilities risk class, abnormal returns increase in firm gearing which is similar to the findings of Modigliani and Miller (1958) which was unique to the utilities sector

Brexit and its impact on EU financial markets

The paper introduces a Brexit intensity measure that assigns an intensity score reflective of the financial markets’ reaction on the events that occurred as Brexit negotiations began to unfold. Subsequently, we investigate the impact of Brexit on volatility spillovers across the EU countries. We find that Brexit related events have contributed towards increased volatility transmission within the EU. Country-wise investigations show that throughout the Brexit timespan, France is the key volatility transmitter within the Union. By contrast, the UK is evidenced as a volatility transmitter during the early stages of Brexit negotiations, under Theresa May as the prime minister. The smallest stock markets of the EU, Ireland, Portugal, and Spain have been amongst those particularly affected

How does a firm's capital structure affect stock performance?

This paper examines the relationship between capital structure and shareholder returns in the UK between 1980 and 2008. Expanding on Modigliani and Miller’s (1958) Proposition 2, returns are estimated using the asset pricing models of CAPM, Fama and French and of Carhart. The analysis shows that gearing (in the form of debt finance) is a characteristic that influences stock returns and that, in contrast to accepted finance theory, is negatively related to estimated returns. This relationship is tested empirically for robustness with other risk factors such as corporate tax rates and industry concentration, the results remain consistent throughout the analysis. If confirmed, the negative impact of debt financing on shareholder returns should trigger a major rethink on corporate financing strategies

The impact of Covid-19 on G7 stock markets volatility: Evidence from a ST-HAR model

We investigate the impact of Covid-19 on stock markets across G7 countries and their business sectors. We highlight the synchronicity and severity of this unprecedented crisis. We find strong transition evidence to a crisis regime in all countries and sectors, yet crisis intensity and timings vary. The Health Care and Consumer services sectors were the most severely affecte