Intra-lndustry Effects of Corporate Capital Investment Announcements |
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Authors: | Sheng-Syan Chen Lan-Chih Ho Yi-Cheng Shih |
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Institution: | Professor at National Taiwan University in Taipei, Taiwan.;Senior Economist at The Central Bank of China in Taipei, Taiwan.;Ph.D. Student at National Taiwan University in Taipei, Taiwan. |
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Abstract: | We examine how announcements of corporate capital investments by one firm affect the stock prices of its competitors. We find that on average, rivals experience a signifi cantly negative valuation effect. The results suggest that for the sample as a whole, the competitive effect dominates the contagion effect. We further examine various factors that could potentially explain the heterogeneous intra-industry effects of capital investment announcements. We find that rivals' share prices are more adversely affected when the announcer experiences a higher announcement effect or is the first mover in the industry. We also show that rivals experience a greater wealth loss when they have poorer investment opportunities or higher financial leverage. |
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