Based on a study of new investment announcements from 1989 to 1995 by Italian firms listed on the Milan Stock Exchange, we find a positive stock price reaction to new investment decisions. The stock price reaction is larger for joint venture announcements. The market response is also larger for non-state owned companies and when the announcement is released in a period of rising stock prices. The announced investment has no impact on the non-voting shares but increases the voting shares' market price through a significant revaluation of their vote-segment. We find some evidence that new investments lead to management's private benefits rather than towards firm value. This is consistent with the typical Italian corporate governance structure, where a majority shareholder safely controls a listed company while having only a fractional claim on the firm's cash flows. © 1998 Kluwer Academic Publishers.
The stock market reaction to investment decisions: Evidence from Italy
Bajo E.;Bigelli M.
;Sandri S.
1998
Abstract
Based on a study of new investment announcements from 1989 to 1995 by Italian firms listed on the Milan Stock Exchange, we find a positive stock price reaction to new investment decisions. The stock price reaction is larger for joint venture announcements. The market response is also larger for non-state owned companies and when the announcement is released in a period of rising stock prices. The announced investment has no impact on the non-voting shares but increases the voting shares' market price through a significant revaluation of their vote-segment. We find some evidence that new investments lead to management's private benefits rather than towards firm value. This is consistent with the typical Italian corporate governance structure, where a majority shareholder safely controls a listed company while having only a fractional claim on the firm's cash flows. © 1998 Kluwer Academic Publishers.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
