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Intra‐lndustry Effects of Corporate Capital Investment Announcements
Author(s) -
Chen ShengSyan,
Ho LanChih,
Shih YiCheng
Publication year - 2007
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2007.tb00089.x
Subject(s) - competitor analysis , valuation effects , leverage (statistics) , monetary economics , valuation (finance) , business , stock (firearms) , economics , investment (military) , stock price , finance , mechanical engineering , marketing , machine learning , politics , computer science , law , engineering , political science , paleontology , series (stratigraphy) , biology
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.