Financial Impact of Firm Withdrawals from State Sponsor of Terrorism Countries

37 Pages Posted: 5 Jan 2012 Last revised: 2 Sep 2017

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Moritz Felde

RWTH Aachen University

Bertram I. Steininger

Royal Institute of Technology (KTH)

Date Written: May 16, 2015

Abstract

Using an event-study framework, we examine the stock market reaction to the announcement of firm withdrawal from countries designated as “State Sponsors of Terrorism” by the U.S. Department of State. We find that such announcements are, on average, linked to a statistically significant increase in firm value – an effect which already kicks in a few days before the announcement date. The observed abnormal returns are positively associated with U.S. domicile, the intensity of a firm’s hitherto existing engagement in a designated country, the number of countries that it withdraws from as well as with a withdrawal from Iran compared to a withdrawal from other countries. Evidence suggests an increase in demand for stocks of withdrawing firms as a plausible cause of the positive stock price reaction. Pension and endowment funds are significantly less likely to own strategic stakes in firms with intensive involvements in countries designated as “State Sponsors of Terrorism”. We find some statistical evidence that firms remaining active in such countries have abnormally positive returns in the long run.

Keywords: firm withdrawal, sin stocks, State Sponsors of Terrorism, stock price reaction

JEL Classification: G11, G14, G15, G23, G32

Suggested Citation

Breuer, Wolfgang and Felde, Moritz and Steininger, Bertram I., Financial Impact of Firm Withdrawals from State Sponsor of Terrorism Countries (May 16, 2015). Journal of Business Ethics, Vol. 144, No. 3, 2017, Available at SSRN: https://ssrn.com/abstract=1980059 or http://dx.doi.org/10.2139/ssrn.1980059

Wolfgang Breuer (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Moritz Felde

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Bertram I. Steininger

Royal Institute of Technology (KTH) ( email )

Stockholm
Sweden