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In 2013, the European Union's Emission Trading Scheme (EU‐ETS) entered Phase III. The majority of emission permits in Phase III are auctioned instead of being allocated for free as in Phases I and II. Using a difference‐in‐differences method, we show that this change has led to an increase in the financial distress risk of the EU‐ETS‐regulated firms when compared to unregulated firms, suggesting that the EU‐ETS imposes a significant financial burden on regulated firms. This result is robust to an array of validation tests, alleviating concerns that it is driven by unobserved factors. In additional analyses we show that the increase in distress risk of regulated firms during Phase III can be explained by, (i) an additional climate regulation cost to purchase pollution permits and (ii) a low average environmental score that possibly (via high sustainability risk) lowers investors expectations regarding firms' performance. Our findings also show that the distress risk increase is higher for regulated firms operating within countries with lower control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice accountability before the EU‐ETS implementation. [ABSTRACT FROM AUTHOR]

Threatening tourism's core values, COVID-19 forced a global lockdown with unprecedent economic ramifications across the industry's sectors. By espousing an econometric methodology, this study investigates the pandemic's impact on hospitality and tourism (H/T) stock indices trading in five European stock markets and explores the effect of both state-enforced, non-pharmaceutical interventions (NPIs) and vaccinations. Findings suggest that a) the pandemic was the most impactful event in history to affect H/T stock indices trading in major European financial markets; b) the tourism industry reacted differently to the pandemic compared to other major economic sectors; and c) government-enforced measures directly targeting the industry's core operations had a powerful effect on both stock returns and volatility during the first year of the pandemic, nevertheless, for returns, this effect was mitigated by the rollout of vaccinations. The study enriches our collective knowledge on the impact of COVID-19 on the economics of tourism, with emphasis on H/T stock indices. [ABSTRACT FROM AUTHOR]

We examine how the accuracy of a multiples‐based valuation changes as the number of comparable firms used to estimate the valuation multiple increases. Our research is motivated by a contrast between the approach followed by practitioners, who typically use a small number of closely comparable firms, and the academic literature which often uses all firms in an industry. Using a simple selection rule based on growth rates, we find that using 10 closely comparable firms is as accurate on average as using the entire cross‐section of firms in an industry. The loss of accuracy from using five comparable firms rather than 10 firms or the entire industry is not great. [ABSTRACT FROM AUTHOR]

We provide new evidence on the economic role of growth options behind the profitability, distress, lotteryness, and volatility anomalies. We use idiosyncratic skewness to measure growth options and estimate expected idiosyncratic skewness capturing investors' expectations about the firm's mix of growth options versus assets-in-place. We find that investors require a positive premium to hold stocks of inflexible firms with low growth options and negative expected skewness and that a newly proposed skewness factor based on growth options explains the aforementioned anomalies. Thus, the new measure of expected idiosyncratic skewness may serve to reduce the number of anomalies in the literature. [ABSTRACT FROM AUTHOR]

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-6281.2010.00314.x Byline: ANDREAS CHARITOU (1), NEOPHYTOS LAMBERTIDES (2), GIORGOS THEODOULOU (1) Keywords: Dividend omissions; Dividend-payment patterns; Dividend reductions; Dividends; Earnings patterns; Earnings reductions; Information content; Losses Abstract: This study pursues two objectives: first, to provide evidence on the information content of dividend policy, conditional on past earnings and dividend patterns prior to an annual earnings decline; second, to examine the effect of the magnitude of low earnings realizations on dividend policy when firms have more-or-less established dividend payouts. The information content of dividend policy for firms that incur earnings reductions following long patterns of positive earnings and dividends has been examined (DeAngelo et al., 1992, 1996 ; Charitou, 2000). No research has examined the association between the informativeness of dividend policy changes in the event of an earnings drop, relative to varying patterns of past earnings and dividends. Our dataset consists of 4,873 U.S. firm-year observations over the period 1986-2005. Our evidence supports the hypotheses that, among earnings-reducing or loss firms, longer patterns of past earnings and dividends: (a) strengthen the information conveyed by dividends regarding future earnings, and (b) enhance the role of the magnitude of low earnings realizations in explaining dividend policy decisions, in that earnings hold more information content that explains the likelihood of dividend cuts the longer the past earnings and dividend patterns. Both results stem from the stylized facts that managers aim to maintain consistency with respect to historic payout policy, being reluctant to proceed with dividend reductions, and that this reluctance is higher the more established is the historic payout policy. Author Affiliation: (1)Department of Public and Business Administration, University of Cyprus (2)Aston Business School, Aston University Article note: A ndreas C haritou (charitou@ucy.ac.cy) and G iorgos T heodoulou are in the Department of Public and Business Administration, University of Cyprus. N eophytos L ambertides is a Lecturer in the Aston Business School, Aston University.

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-6281.2007.00230.x Byline: Andreas Charitou (1), Neophytos Lambertides (2), Lenos Trigeorgis (3) Keywords: Abnormal returns; Audit opinions; Distress; Earnings management; Institutional ownership; Management turnover Abstract: Using a sample of 859 U.S. bankruptcy-filing firms over the period 1986-2004, we examine the earnings behaviour of managers during the distressed period by looking at sources of abnormal accruals prior to the bankruptcy-filing year. Results show that managers of highly distressed firms shift earnings downwards prior to the bankruptcy filing. We test and provide evidence in support of two potential contributing factors. First, top-level management turnover among distressed firms leads new managers to earnings bath choices during the distressed period. Second, qualified audit opinions exert pressure on managers to follow more conservative earnings behaviour during the distressed period. Evidence is also provided that the management of distressed firms with lower (higher) institutional ownership has greater (lesser) tendency to manage earnings downwards. Results also show that higher institutional ownership mitigates the negative abnormal returns of firms with top management turnover. To the authors' knowledge, this is the first study that attempts to examine whether institutional ownership relates to market reaction in conjunction with a top management turnover or a qualified audit opinion during the distressed period. Prior studies focused on the investigation of earnings management or institutional ownership (separately) during the distressed period, but did not examine if the effect of institutional ownership on earnings behaviour also influences subsequent returns. Thus, the results of this study should be of interest to analysts, standard setters and regulatory bodies since our results show that management turnover, qualified audit opinions and firm governance mechanisms affect the quality of earnings and the level of abnormal returns. Author Affiliation: (1)University of Cyprus (2)Business School at Aston University (3)University of Cyprus and Visiting Professor at MIT