IDEAS home Printed from https://ideas.repec.org/a/kap/jmgtgv/v2y1998i1p1-16.html
   My bibliography  Save this article

The Stock Market Reaction to Investment Decisions: Evidence from Italy

Author

Listed:
  • Emanuele Bajo
  • Maroc Bigelli
  • Sandro Sandri

Abstract

Based on a study of new investment announcements from 1989 to 1995 by Italian firms listed on the Milan Stock Exchange, we find a positive stock price reaction to new investment decisions. The stock price reaction is larger for joint venture announcements. The market response is also larger for non-state owned companies and when the announcement is released in a period of rising stock prices. The announced investment has no impact on the non-voting shares but increases the voting shares' market price through a significant revaluation of their vote-segment. We find some evidence that new investments lead to management's private benefits rather than towards firm value. This is consistent with the typical Italian corporate governance structure, where a majority shareholder safely controls a listed company while having only a fractional claim on the firm's cash flows. Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • Emanuele Bajo & Maroc Bigelli & Sandro Sandri, 1998. "The Stock Market Reaction to Investment Decisions: Evidence from Italy," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 2(1), pages 1-16, March.
    • Handle: RePEc:kap:jmgtgv:v:2:y:1998:i:1:p:1-16
    DOI: 10.1023/A:1009945224561
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1023/A:1009945224561
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1023/A:1009945224561?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. McConnell, John J & Nantell, Timothy J, 1985. "Corporate Combinations and Common Stock Returns: The Case of Joint Ventures," Journal of Finance, American Finance Association, vol. 40(2), pages 519-536, June.
    3. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," The Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 125-148.
    4. McConnell, John J. & Muscarella, Chris J., 1985. "Corporate capital expenditure decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 14(3), pages 399-422, September.
    5. Marco Bigelli, 1998. "The Quasi‐split Effect, Active Insiders and the Italian Market Reaction to Equity Rights Issues," European Financial Management, European Financial Management Association, vol. 4(2), pages 185-206, July.
    6. Fama, Eugene F. & Jensen, Michael C., 1985. "Organizational forms and investment decisions," Journal of Financial Economics, Elsevier, vol. 14(1), pages 101-119, March.
    7. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    8. Chan, Su Han & Martin, John D. & Kensinger, John W., 1990. "Corporate research and development expenditures and share value," Journal of Financial Economics, Elsevier, vol. 26(2), pages 255-276, August.
    9. J. Randall Woolridge & Charles C. Snow, 1990. "Stock market reaction to strategic investment decisions," Strategic Management Journal, Wiley Blackwell, vol. 11(5), pages 353-363, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Bigelli & Stefano Mengoli, 2004. "Sub-Optimal Acquisition Decisions under a Majority Shareholder System," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 8(4), pages 373-405, October.
    2. Munari, Federico & Roberts, Edward B. & Sobrero, Maurizio, 2002. "Privatization processes and the redefinition of corporate R&D boundaries," Research Policy, Elsevier, vol. 31(1), pages 31-53, January.
    3. Franco Cescon, 2002. "Short-term Perceptions, Corporate Governance and the Management of R & D in Italian Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(3), pages 255-270, September.
    4. Parmjit Kaur & Randeep Kaur, 2019. "Effects of Strategic Investment Decisions on Value of Firm: Evidence from India," Paradigm, , vol. 23(1), pages 1-19, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:bla:finmgt:v:36:y:2007:i:2:p:1-21 is not listed on IDEAS
    2. Parmjit Kaur & Randeep Kaur, 2019. "Effects of Strategic Investment Decisions on Value of Firm: Evidence from India," Paradigm, , vol. 23(1), pages 1-19, June.
    3. Wen-Chun Lin & Shao-Chi Chang, 2012. "Corporate governance and the stock market reaction to new product announcements," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 273-291, August.
    4. Sabet, Amir H. & Heaney, Richard, 2016. "An event study analysis of oil and gas firm acreage and reserve acquisitions," Energy Economics, Elsevier, vol. 57(C), pages 215-227.
    5. repec:bla:finmgt:v:36:y:2007:i:2:p:1-21:2 is not listed on IDEAS
    6. Roberto Mura, 2007. "Firm Performance: Do Non‐Executive Directors Have Minds of their Own? Evidence from UK Panel Data," Financial Management, Financial Management Association International, vol. 36(3), pages 81-112, September.
    7. Alexander Radygin & Revold Entov & Marina Turuntseva & Alena Gontmakher & Harry Swain & Jeff Carruthers & Karen Minden & Cheryl Urban, 2002. "The problems of corporate governance in Russia and its regions," Published Papers 12, Gaidar Institute for Economic Policy, revised 2002.
    8. Heinrich, Ralph P., 1999. "Complementarities in Corporate Governance - A Survey of the Literature with Special Emphasis on Japan," Kiel Working Papers 947, Kiel Institute for the World Economy (IfW Kiel).
    9. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    10. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    11. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(3), pages 489-510, September.
    12. Esther B. Del Brio & Javier Perote & Julio Pindado, 2003. "Measuring the Impact of Corporate Investment Announcements on Share Prices: The Spanish Experience," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(5‐6), pages 715-747, June.
    13. Chunhua Chen & Chuntai Jin & Tianze Li & Steven X. Zheng, 2018. "IPO valuation and offering size," Risk Management, Palgrave Macmillan, vol. 20(2), pages 95-120, May.
    14. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    15. Edwards, Jeremy S.S. & Weichenrieder, Alfons J., 2009. "Control rights, pyramids, and the measurement of ownership concentration," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 489-508, October.
    16. Pierre-Xavier Meschi & Emmanuel Metais, 2002. "Investissements français aux États-Unis, stratégies de croissance externe et réactions du marché boursier," Revue Finance Contrôle Stratégie, revues.org, vol. 5(1), pages 129-165, March.
    17. Jan Bena & Jan Hanousek, 2008. "Rent Extraction by Large Shareholders: Evidence Using Dividend Policy in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(03-04), pages 106-130, May.
    18. Chaiyasit Anuchitworawong, 2010. "The Value of Principles-Based Governance Practices and the Attenuation of Information Asymmetry," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(2), pages 171-207, June.
    19. Jean-Jacques Hamon, 2001. "La répartition des droits de vote, leur exercice et l’efficacité économique," Revue d'Économie Financière, Programme National Persée, vol. 63(3), pages 175-209.
    20. Hai-Chin Yu & Ben Sopranzetti & Cheng-Few Lee, 2015. "The impact of banking relationships, managerial incentives, and board monitoring on corporate cash holdings: an emerging market perspective," Review of Quantitative Finance and Accounting, Springer, vol. 44(2), pages 353-378, February.
    21. Mehdi Nehkili & Evelyne Poincelot, 2000. "La fonction R&D et la latitude managériale: une analyse théorique," Revue Finance Contrôle Stratégie, revues.org, vol. 3(1), pages 5-28, March.
    22. Jin-hui Luo & Di-fang Wan & Di Cai, 2012. "The private benefits of control in Chinese listed firms: Do cash flow rights always reduce controlling shareholders’ tunneling?," Asia Pacific Journal of Management, Springer, vol. 29(2), pages 499-518, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jmgtgv:v:2:y:1998:i:1:p:1-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.