The Stock Market Reaction to Investment Decisions: Evidence from Italy |
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Authors: | Emanuele Bajo Maroc Bigelli Sandro Sandri |
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Affiliation: | (1) Università Cattolica del Sacro Cuore, Milano, Italy;(2) Department of Applied Economic-Sciences, University of Bologna, Piazza Scaravilli 1, 40126, Bologna, Italy; E-mail: Email |
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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. |
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