The Announcement and Long-Term Effects of Hiring a Management Consulting Firm

48 Pages Posted: 19 Aug 2003

See all articles by Andrew A. Samwick

Andrew A. Samwick

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Ajay Prakash

Dartmouth College

Date Written: June 26, 2003

Abstract

Despite the prominence of management consulting firms, there is little systematic evidence in the finance and economic literature of their impact on corporate performance. This paper assembles a unique dataset of companies that announce their relationships with a management consulting firm between 1991 and 2001. Stock returns fall by an average of 4.3 percentage points relative to the market when an announcement is made. The median price drop is 1.6 percentage points. In a longer-term analysis, the intercepts from a Fama-French four-factor model show that announcing companies earn negative risk adjusted returns prior to their announcements. Risk adjusted returns are significantly higher after the announcement, with the total risk adjusted return peaking at 1.3 percentage points per month approximately three years after the announcement. In addition, we show that the companies that announce a relationship with a management consultant tend to under perform their competitors before hiring and then begin to outperform them after two years. Average employment growth turns sharply negative in the years following the announcement; however, the positive risk-adjusted returns are only weakly correlated with employment contractions in the cross-section of announcement companies.

Keywords: Consultant, Event study, Multifactor model

JEL Classification: G12, G14, G34

Suggested Citation

Samwick, Andrew A. and Prakash, Ajay, The Announcement and Long-Term Effects of Hiring a Management Consulting Firm (June 26, 2003). Available at SSRN: https://ssrn.com/abstract=420372 or http://dx.doi.org/10.2139/ssrn.420372

Andrew A. Samwick (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2893 (Phone)
603-646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~samwick

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ajay Prakash

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
363
Abstract Views
2,057
rank
88,728
PlumX Metrics