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Stock market reaction to capital expenditure announcements by UK firms

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  • Saeed Akbar
  • Syed Zulfiqar Ali Shah
  • Issedeeq Saadi

Abstract

The key objective of this article is to analyse the stock market reaction to capital expenditure announcements by UK firms. To attain such an objective, we adopt an 'event study' methodology. We analyse a large sample of 884 capital expenditure announcements made by 426 companies allocated in different sectors over a period of 14 years from 1990 to 2003. The results suggest a significant and positive relationship between capital spending announcements and share prices. Our results also suggest a positive (negative) and significant relationship between announcements of increase (decrease) in capital expenditure and abnormal stock returns. Market participants seem to respond positively to corporate capital expenditure decisions regardless of the types of projects in which the funds are to be invested.

Suggested Citation

  • Saeed Akbar & Syed Zulfiqar Ali Shah & Issedeeq Saadi, 2008. "Stock market reaction to capital expenditure announcements by UK firms," Applied Financial Economics, Taylor & Francis Journals, vol. 18(8), pages 617-627.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:8:p:617-627
    DOI: 10.1080/09603100701222234
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