Stock Market Reaction to Sell-Offs Announcements: Canadian Evidence

Abstract

This study examines the effects of Canadian divestitures announcements on selling companies’ shareholder wealth. Using a non parametric bootstrap approach to test for significance, our results show that the sell-off announcement produces significant positive average abnormal returns of 0.92% over a two day announcement period. Gains arise predominantly from divestitures that focus firm’s activities. A cross sectional regression shows that private lender monitoring and focused operations have a positive and significant wealth effect on the divesting firms.

Keywords: sell-offs, wealth effect, focus, lender monitoring, financial distress

JEL Classification: G14, G34