Measuring the Impact of Corporate Investment Announcements on Share Prices

Abstract

Previous studies on corporate investment impact on market prices have revealed that investors react positively to the publication of information regarding increases in capital expenditure. We test this hypothesis for the Spanish capital markets considering a sample composed of both investment and divestment announcements. Our results contradict the available evidence since no significant market reaction, either upward or downward, is detected once the information is publicly available. Moreover, the information of the announcement is impounded by prices five days before the announcement date. We also consider the valuation effects of corporate investment regarding the level of cash flow of the firm, finding significant differences in the market reaction.

Keywords: Corporate investment announcements, market response, Tobin's q, FCF, GARCH effects

JEL Classification: G14, G31.