Company Investment Announcements and the Market Value of the Firm

Edward Jones, J. Danbolt, Ian Hirst

    Research output: Contribution to journalArticlepeer-review

    23 Citations (Scopus)


    This paper examines the stock market reaction to 402 company investment announcements made by UK companies during the 1991-1996 period. The market-adjusted abnormal returns are generally positive but small. Investment announcements are classified according to functional categories, and we find the level of abnormal returns to vary according to the type of capital investment being announced. In particular, we find the market to react more favourably to investments that 'create' future investment opportunities, than to investments which can be categorized as 'exercising' investment opportunities. The market reaction also varies with firm size, with large companies tending to experience smaller responses to announcements than do smaller firms. Chung et al (1998) reported that the quality of a company's investment opportunities is the primary determinant of market reactions to capital expenditure decisions. The findings presented here lend some support to a role for investment opportunities in market valuations. Project size is also found to have a significant positive impact on the level of abnormal returns.

    Original languageEnglish
    Pages (from-to)437-452
    Number of pages16
    JournalEuropean Journal of Finance
    Issue number5
    Publication statusPublished - Oct 2004


    • Capital investment
    • Event study
    • Investment announcements


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