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The impact of forced divestments on parent company stock prices: Buy on the rumor, sell on the news?

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  • Restrepo-Ochoa, Diana Constanza
  • Peña, Juan Ignacio

Abstract

We measure how warnings of expropriation and forced divestments of private property affect the stock prices of parent companies. We use a unique database of 116 events in 12 countries from 2005 to 2013. Our results show that different types of warnings have significant negative effects on stock prices, and the largest effect is from a warning that takes the form of a transitory permit revocation. In the case of forced divestments, we find a significant negative impact when a permit is permanently revoked. However, nationalizations are associated with a positive market reaction.

Suggested Citation

  • Restrepo-Ochoa, Diana Constanza & Peña, Juan Ignacio, 2020. "The impact of forced divestments on parent company stock prices: Buy on the rumor, sell on the news?," Research in International Business and Finance, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:riibaf:v:53:y:2020:i:c:s0275531919305586
    DOI: 10.1016/j.ribaf.2019.101175
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    More about this item

    Keywords

    Expropriation risk; Nationalization; Event study; Stock market; G14; H13;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization

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