Light a lamp and look at the stock market

Financial Innovation

Table 6 Light a lamp, financial distress and returns

Variables	(1)	(2)	(3)	(4)	(5)
Variables	Returns_t+1	Returns_t+2	Returns_t+3	Returns_t+4	Returns_t+5
Panel A: Cashflow
Event*Cashflow	10.85***	4.152**	− 0.580	− 0.212	2.720
Event*Cashflow	(2.255)	(1.818)	(2.036)	(2.237)	(1.813)
Controls	Yes	Yes	Yes	Yes	Yes
Observations	48,489	45,692	44,327	43,018	41,717

Variables	(1)	(2)	(3)	(4)	(5)
Variables	Returns_t+1	Returns_t+2	Returns_t+3	Returns_t+4	Returns_t+5
Panel B: Dividend
Event*Dividend	1.224***	0.205	0.967***	− 0.112	0.460
Event*Dividend	(0.312)	(0.296)	(0.310)	(0.317)	(0.292)
Controls	Yes	Yes	Yes	Yes	Yes
Observations	49,234	46,322	44,932	43,597	42,272

Variables	(1)	(2)	(3)	(4)	(5)
Variables	Returns_t+1	Returns_t+2	Returns_t+3	Returns_t+4	Returns_t+5
Panel C: Kaplan and Zingales index
Event*KZI	− 0.0312***	-0.00567	− 0.0232***	0.000681	− 0.0112
Event*KZI	(0.00858)	(0.00795)	(0.00856)	(0.00883)	(0.00823)
Controls	Yes	Yes	Yes	Yes	Yes
Observations	43,062	40,630	39,426	38,274	37,111

Variables	(1)	(2)	(3)	(4)	(5)
Variables	Returns_t+1	Returns_t+2	Returns_t+3	Returns_t+4	Returns_t+5
Panel D: Whited and Wu index
Event*WWI	− 5.809**	− 0.350	− 4.184***	2.800**	− 1.444
Event*WWI	(2.405)	(1.689)	(1.229)	(1.218)	(1.072)
Controls	Yes	Yes	Yes	Yes	Yes
Observations	45,768	43,181	41,892	40,668	39,451

This table shows the estimation result of \(r_{i,t + k} = \alpha + \beta Event_{t} + \gamma {\text{Financial Distress}}_{i,t} + \delta Event_{t} *{\text{Financial Distress}}_{i,t} + Controls + \varepsilon_{i,t + k}\) to explore the differential effect of light a lamp event on the stocks with different financial distress levels. Event is a dummy variable that takes value 1 for the post-event trading day; zero otherwise. Panel A, B, C and D use cashflow, dividend, Kaplan and Zingales (1997) index and Whited and Wu (2006) index respectively as distress measures. Controls include past returns, price-to-earnings ratio (P/E), price-to-book value ratio (P/B), log of turnover (Turnover) and log of market capitalization (MarketCap), log of total assets (Size), age of the firm measured by the log of number of years since incorporated (Age), return on asset measured by the ratio of profit after tax to total assets ROA, and debt of the firm measured by the ratio of total debt to total asset (Debt). We included only trading related variables as controls while employing KZI and WWI since other measures are used to construct the distress indices Robust standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.