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Empirical evidence on the determinants of the stock market reaction to product and market diversification announcements

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  • Edward Jones
  • Jo Danbolt

Abstract

The announcement of product and market diversification projects lead to significant abnormal returns of 1.1%. However, the gains are higher for new products than for new markets, and for companies with high price-earnings ratios and low (or zero) dividend yields.

Suggested Citation

  • Edward Jones & Jo Danbolt, 2005. "Empirical evidence on the determinants of the stock market reaction to product and market diversification announcements," Applied Financial Economics, Taylor & Francis Journals, vol. 15(9), pages 623-629.
    • Handle: RePEc:taf:apfiec:v:15:y:2005:i:9:p:623-629
    DOI: 10.1080/09603100500065461
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    References listed on IDEAS

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    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Bruce M. Burton & A. Alasdair Lonie & David M. Power, 1999. "The Stock Market Reaction to Investment Announcements: The Case of Individual Capital Expenditure Projects," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(5‐6), pages 681-708, June.
    3. Edward Jones & Jo Danbolt, 2004. "Joint venture investments and the market value of the firm," Applied Financial Economics, Taylor & Francis Journals, vol. 14(18), pages 1325-1331.
    4. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    5. Bruce M. Burton & A. Alasdair Lonie & David M. Power, 1999. "The Stock Market Reaction to Investment Announcements: The Case of Individual Capital Expenditure Projects," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(5&6), pages 681-708.
    6. Edward Jones & Jo Danbolt & Ian Hirst, 2004. "Company investment announcements and the market value of the firm," The European Journal of Finance, Taylor & Francis Journals, vol. 10(5), pages 437-452.
    7. Sheng-Syan Chen & Kim Wai Ho, 1997. "Market Response to Product-Strategy and Capital-Expenditure Announcements in Singapore: Investment Opportunities and Free Cash Flow," Financial Management, Financial Management Association, vol. 26(3), Fall.
    8. 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.
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    3. 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.

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