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The Effect of Public Contract Winning Announcements on Share Prices: An Event-Based Study on the Pharmaceutical Industry

Author

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  • Eyden Samunderu

    (International School of Management – (ISM), Dortmund, Germany)

  • Anita Yordanova

    (International School of Management – (ISM), Dortmund, Germany)

Abstract

The purpose of this paper is to examine and elucidate the effect of the announcement of winning a US federal contract by pharmaceutical companies, traded on the NASDAQ stock exchange on the share prices. The analysis is based on a sample of 327 event days from 12 pharmaceutical companies listed on the NASDAQ market for a given period (2010 – 2021). The sample is analysed by using the event study methodology and Capital Asset Pricing Model (CAPM) in order to examine the abnormal returns and cumulative abnormal returns during an event window of 10 days before the event and 10 days after the event. While prior researchers have identified significant positive abnormal returns following different types of contract announcements, this study aims to contribute to the existing literature by exploring the specific impact of the public contract in the pharmaceutical market on market shares. By investigating this unique aspect, the research fills a gap in previous studies and enhances our understanding of the relationship between public contract announcements and market performance. The data collection utilises secondary data from the official open data source of US federal spending information and daily stock prices. The collected data is analysed quantitatively using event study methodology, allowing for statistical examination of abnormal returns, such as ANOVA analysis, t-statistic, beta index, time series analysis and linear regression. The research findings indicate a significant impact of public contract-winning announcements on cumulative abnormal returns, suggesting a positive reaction from the market. However, average abnormal returns within the event window were positive but not statistically significant. These results imply that winning a government contract has a limited impact on the stock market. The implications of this research highlight the importance of public contract announcements in the pharmaceutical industry and their influence on share prices. The findings provide valuable insights for investors and stakeholders, aiding decision-making processes related to investment opportunities and market performance.

Suggested Citation

  • Eyden Samunderu & Anita Yordanova, 2024. "The Effect of Public Contract Winning Announcements on Share Prices: An Event-Based Study on the Pharmaceutical Industry," Journal of Economic Analysis, Anser Press, vol. 3(1), pages 1-26, March.
    • Handle: RePEc:bba:j00001:v:3:y:2024:i:1:p:1-26:d:131
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    References listed on IDEAS

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    1. Firth, Michael A, 1976. "The Impact of Earnings Announcements on the Share Price Behaviour of Similar Type Firms," Economic Journal, Royal Economic Society, vol. 86(342), pages 296-306, June.
    2. Ali Murad Syed & Ishtiaq Ahmad Bajwa, 2018. "Earnings announcements, stock price reaction and market efficiency – the case of Saudi Arabia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 11(3), pages 416-431, February.
    3. B. M. Burton & A. A. Lonie & D. M. Power, 2000. "The impact of corporate growth opportunities on the market response to new equity announcements," Applied Financial Economics, Taylor & Francis Journals, vol. 10(1), pages 27-36.
    4. Yang, Jun & Lu, Wei & Zhou, Chunhui, 2014. "The immediate impact of purchasing/sales contract announcements on the market value of firms: An empirical study in China," International Journal of Production Economics, Elsevier, vol. 156(C), pages 169-179.
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