The study has captured the effects of announcements of strategic investment decisions on market value of firm and also established the relationship between market value and firm-specific variables. The study is based on strategic investment announcements made by BSE-500 firms, and final sample for the study consists of 581 strategic investment announcements made by 217 firms. These decisions have been classified into seven categories. In order to examine the reaction of share prices to the strategic investment announcements, the event study methodology (Brown and Warner, Journal of Financial Economics, 14, 3–31, 1985; MacKinlay, Journal of Economic Literature, 35, 13–39, 1997) has been applied. The relationship between abnormal returns and independent variables is examined with multiple regression analysis. The results provide strong evidence that the strategic investment decisions’ announcements in India contain a positive information signal, and these are perceived as value-enhancing decisions by the investors. The results also help to improve the understanding of how different firm-specific factors may influence market reaction to announcements of strategic investment decisions.
AggarwalR.AgmonT. (1990). The international success of developing country firms: Role of government directed comparative advantage. Management International Review, 30(2), 163–180.
2.
Al-HoraniA.PopeP. F.StarkA. W. (2003). Research and development activity and expected returns in the United Kingdom. European Finance Review, 7(1), 27–46.
3.
BajoE.BigelliM.SandriS. (1998). The stock market reaction to investment decisions: Evidence from Italy. Journal of Management and Governance, 2(1), 1–16.
4.
BhanaN. (2001). The valuation effects of research and development spending announcements by companies listed on the Johannesburg Stock Exchange. Investment Analysts Journal, 30(53), 29–40.
5.
BhanaN. (2008). The market reaction to capital expenditure announcements. Investment Analysts Journal, 37(68), 53–64.
6.
BiermanH.Jr.SmidtS. (1993). The capital budgeting decision: Economic analysis of investment projects (8th ed.). Upper Saddle River, NJ: Prentice-Hall.
7.
BloseL. E.ShiehJ. C. P. (1997). Tobin’s q-ratio and market reaction to capital investment announcements. The Financial Review, 32(3), 449–476.
8.
BowermanB. L.O’ConnellR. T. (1990). Linear statistical models: An applied approach. Boston, MA: PWS-Kent Publishing Company.
9.
BrealeyR. A.MyersS. C. (2003). Principles of corporate finance. New York, NY: Tata McGraw-Hill.
10.
BrownS. J.WarnerJ. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3–31.
11.
BurtonB. (2005). Concurrent capital expenditure and the stock market reaction to corporate alliance announcements. Applied Financial Economics, 15(10), 715–729.
12.
BurtonB. M.LonieA. A.PowerD. M. (1999). The stock market reaction to investment announcements: The case of individual capital expenditure projects. Journal of Business Finance & Accounting, 26(5–6), 681–709.
13.
ChanH. S.GauG. W.WangK. (1995). Stock market reaction to capital investment decisions: Evidence from business relocations. Journal of Financial and Quantitative Analysis, 30(1), 81–100.
14.
ChanH. S.KensingerW. J.KoewnJ. A.MartinD. J. (1997). Do strategic alliances create value. Journal of Financial Economics, 46, 199–221.
15.
ChanH. S.MartinD. J.KensingerW. J. (1990). Corporate research and development expenditures and share value. Journal of Financial Economics, 26(2), 255–276.
16.
ChaneyP. K.DevinneyT. M. (1992). New product innovations and stock price performance. Journal of Business Finance & Accounting, 19(5), 677–695.
17.
ChaneyP. K.DevinneyT. M.WinerR. S. (1991). The impact of new product announcements on the market value of the firm. Journal of Business, 64(4), 573–610.
18.
ChangS. C.ChenS. S. (2002). The wealth effect of domestic joint ventures: Evidence from Taiwan. Journal of Business Finance and Accounting, 29(1–2), 201–222.
19.
ChangS. C.HuangP. C. (2002). Corporate multinationalism, organizational learning, and market reaction to international joint ventures: Evidence from Taiwan. Global Finance Journal, 13(2), 181–194.
20.
ChenS. S. (2006). The economic impact of corporate capital expenditures: Focused firm versus diversified firms. Journal of Financial and Quantitative Analysis, 41(2), 341–355.
21.
ChenS. S.HoK. W. (1997). Market response to product-strategy and capital-expenditure announcements in Singapore: Investment opportunities and free cash flow. Financial Management, 26(3), 82–88.
22.
ChenS. S.ChungL. I.ChungT. Y. (2001). Investment opportunities, free cash flow and stock valuation effects of corporate investments: The case of Taiwanese investments in China. Review of Quantitative Finance and Accounting, 16(4), 299–310.
23.
ChenS. S.HoH. W.IkK. H.LeeC. F. (2002). How does strategic competition affect firm values? A study of new product announcements. Financial Management, 31(2), 67–84.
24.
ChenS. S.HoK. W.LeeC. F.YeoG. H. H. (2000). Investment opportunities, free cash flow and market reaction to international joint ventures. Journal of Banking and Finance, 24(11), 1747–1765.
25.
ChenH.HuM. Y.ShiehJ. C. P. (1991). The wealth effect of international joint ventures: The case of US investment in China. Financial Management, 20(4), 31–41.
26.
ChungI. Y.KofordK. J.LeeI. (1993). Stock market views of corporate multi-nationalism: Some evidence from announcements of international joint ventures. Quarterly Review of Economics and Finance, 33(3), 275–293.
27.
ChungK. H.WrightP.CharoenwongC. (1998). Investment opportunities and market reaction to capital investment decisions. Journal of Banking and Finance, 22(1), 41–60.
DesaiA.WrightP.ChungK. H.CharoenwongC. (2003). Impact of changes in strategic investments on shareholder returns: The role of growth opportunities. The Journal of Applied Business Research, 19(1), 41–57.
30.
DyckmanT.PhilbrickD.StephanJ. (1984). A comparison of event study methodologies using daily stock returns: A simulation approach. Journal of Accounting Research, 22(1), 1–30.
31.
FamaE. F.MillerM. H. (1972). The theory of finance. New York, NY: Holt, Rinehart and Winston.
32.
FamaE. F.FisherL.JensenM. C.RollR. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.
33.
FernandezB. C.CallenY. F.GadeaJ. A. L. (2011). The impact of strategic alliances on the market value of telecommunications firms. Journal of High Technology Management Research, 22(1), 1–13.
34.
FinnertyJ. E.OwersJ. E.RogersR. C. (1986). The valuation impact of joint ventures. Management International Review, 26(2), 14–26.
35.
FrohlsM. A.KeownA.McNabbM.MartinJ. (1998).Growth opportunities, corporate governance and the market value of multinational joint ventures. Managerial and Decision Economics, 19(1), 13–29.
36.
GuptaC. P.KumarR. (2007). A re-examination of factors affecting returns in the Indian stock market. Journal of Emerging Market Finance. Retrieved from http://ssrn.com/abstract=1376236
37.
HanvanichS.CavusgilT. S. (2003). Stock market reactions to international joint venture announcement: An event analysis. International Business Review, 10(2), 139–154.
38.
HuaL. L. Y.ShaikhJ. M. (2011). Stock market reaction towards capital expenditure announcements: Malaysia case for servicing and manufacturing industry. Global Review of Accounting and Finance, 2(1), 29–41.
39.
IrwantoA.VetterE. D.WingendeR. J. (1999). The influence of U.S. joint ventures in Asia on shareholder wealth. Journal of Financial and Strategic Decisions, 12(1), 33–40.
40.
JainP. C. (1985). The effect of voluntary sell-off announcements on shareholder wealth. Journal of Finance, 40(1), 209–224.
41.
JanakiramananS.LambaA. S.SeneviratneC. M. (2005). A comparison of the shareholder wealth effects of firms announcing domestic and international joint ventures. Investment Management and Financial Innovations, 4, 33–49.
42.
JonesE.DanboltJ. (2003). R&D project announcements and the impact of ownership structure. Applied Economics Letters, 10, 933–936.
43.
JonesE.DanboltJ. (2004). Joint venture investments and market value of the firm. Applied Financial Economics, 14(18), 1325–1331.
44.
JonesE.DanboltJ. (2005). Empirical evidence on the determinants of the stock market reaction to product and market diversification announcements. Applied Financial Economics, 15(9), 623–629.
45.
JonesE.DanboltJ.HirstI. (2004). Company investment announcements and the market value of the firm. European Journal of Finance, 10(5), 437–452.
46.
KaplanS. (1989). The effects of management buyouts on operating performance and value. Journal of Financial Economics, 24(2), 217–254.
47.
KaracaerS.OzekP. (2009). How do firm characteristics affect the market reaction to investment announcements: ISE case. Investment Management and Financial Innovations, 6(1), 156–162.
48.
KelmM. K.NarayananK. V.PinchesE. G. (1995). Shareholder value creation during R&D innovation and commercialization stages. The Academy of Management Journal, 38(3), 770–786.
49.
KeownA. J.LauxP. A.MartinJ. D. (2005). The information content of corporate investment announcements: The case of joint ventures. Research in Finance, 22, 33–71.
50.
KhannaT.PalepuK. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55(2), 867–891.
51.
KimW. S.LynE.ParkT. J.ZychowiczE. (2005). The wealth effects of capital investment decisions: An empirical comparison of Korean Chaebol and Non-Chaebol firms. Journal of Business Finance & Accounting, 32(5–6), 945–971.
52.
KohJ.VenkatramanN. (1991). Joint venture formations and stock market reactions: An assessment in the information technology section. Academy of Management Journal, 34(4), 869–892.
53.
KokuP. S. (2009). The information content and the stock market’s reaction to new product announcements in the computer industry. Journal of Applied Management Accounting Research, 7(1), 21–36.
54.
KothariS. P.WarnerJ. B. (2005). Econometrics of event studies (Working Paper). Dartmouth: Centre for Corporate Governance, Tuck School of Business.
55.
KumarM. V. S. (2007). Asymmetric wealth gains in joint ventures: Theory and evidence. Finance Research Letters, 4(1), 19–27.
56.
LangL. H. P.StulzR. M.WalklingR. A. (1989). Managerial performance, Tobin’s Q and the gains from successful tender offers. Journal of Financial Economics, 24(1), 137–154.
57.
LangL. H. P.StulzR. M.WalklingR. A. (1991). A test of the free cash flow hypothesis: The case of bidder returns. Journal of Financial Economics, 29(2), 315–335.
58.
LeeI.WyattS. B. (1990). The effects of international joint ventures on shareholder wealth. The Financial Review, 25(4), 641–649.
59.
LonieA. A.GunasekarageA.PowerD. M.SinclairC. D. (1996). The stock market reaction to dividend announcements: A UK study of complex market signals. Journal of Economic Studies, 23(1), 32–52.
60.
MacKinlayA. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39.
61.
MasulisR. W. (1980). The effects of capital structure change on security prices: A study of exchange offers. Journal of Financial Economics, 8(2), 139–177.
62.
MathurI.WaheedA. (1991). Overseas expansion and shareholder’s wealth. Journal of Applied Business Research, 7(4), 48–55.
63.
McConnellJ. J.MuscarellaC. J. (1985). Corporate capital expenditure decisions and market value of the firm. Journal of Financial Economics, 14(3), 399–422.
64.
McConnellJ. J.NantellT. J. (1985). Corporate combinations and common stock returns: The case of joint ventures. The Journal of Finance, 40(2), 519–536.
65.
McNallyW. J. (2002). Open market share repurchases in Canada. Canadian Investment Review, 15, 24–31.
66.
MehtaA.TrivediS. (1996). Reshaping the economy: Implications of privatization in India. Indian Economic Journal, 44(2), 104–116.
67.
MintzbergH.RaisinghaniD.TheoretA. (1976). The structure of ‘unstructured’ decision processes. Administrative Science Quarterly, 21(2), 247–275.
68.
MyersR. (1990). Classical and modern regression with applications (2nd ed.). Boston, MA: Duxbury.
69.
NayyarP. R. (1993). Stock market reactions to related diversification moves by service firms seeking benefits from information asymmetry and economies of scope. Strategic Management Journal, 14(8), 569–591.
70.
OferA. R.SiegelD. (1987). Corporate financial policy, information, and market expectations: An empirical investigation of dividends. Journal of Finance, 42(4), 889–911.
71.
OhW.KimJ. W. (2001). The effects of firm characteristics on investor reaction to IT investment announcements. Proceedings of Twenty-second International Conference on Information Systems (pp. 145–156). Retrieved from http://aisel.aisnet.org/icis2001/18
72.
OzbebekA.CanikliS.AyturkY. (2011). Does Turkish stock market react to public announcements of major capital expenditures?Procedia Social and Behavioral Sciences, 24, 928–934.
73.
PandeyI. M. (2005). Financial management. New Delhi: Vikas Publishing.
74.
ParkS. H.KimD. (1997). Market valuation of joint ventures: Joint venture characteristics and wealth gains. Journal of Business Venturing, 12(2), 83–108.
75.
ParkN. K.MeziasJ. M.SongJ. (2004). A resource-based view of strategic alliances and firm value in the electronic marketplace. Journal of Management, 30(1), 7–27.
76.
PratherL. J.MinJ. H. (1998).Testing of the positive-multinational network hypothesis: Wealth effects of international joint ventures in emerging markets. Multinational Finance Journal, 2(1), 151–165.
77.
SarkarS.SarkarJ. (2000). Large shareholder activism in corporate governance in developing countries: Evidence from India. International Review of Finance, 1, 161–194.
78.
SlagmulderR. (1997). Using management control systems to achieve alignment between strategic investment decisions and strategy. Management Accounting Research, 8(1), 103–139.
79.
SrinivasanS.ThenmozhiM.VijayaraghavanP. (2005). Stock market reaction to corporate strategic decisions. Indian Institute of Capital Markets 9th Capital Markets Conference Paper. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=873987
80.
StatmanM.SepeJ. F. (1989). Project termination announcements and the market value of firm. Financial Management, 18(4), 74–81.
81.
SzewczykS. H.TsetsekosG. P.ZantoutZ. (1996). The valuation of corporate R&D expenditures: Evidence from investment opportunities and free cash flow. Financial Management, 25(1), 105–110.
82.
TsayY. T.AltF.GordonL. A. (1993). The market reaction to announced deep cuts in capital expenditures. Managerial and Decision Economics, 14(1), 1–14.
83.
VafeasN.ShenoyC. (2005). An empirical investigation of capital expenditure announcements. Applied Economics Letters, 12(14), 907–911.
84.
VogtS. C. (1997). Cash flow and capital spending: Evidence from capital expenditure announcements. Financial Management, 26(2), 44–57.
85.
WoolridgeJ. R. (1988). Competitive decline and corporate restructuring: Is a myopic stock market to blame. Journal of Applied Corporate Finance, 1(1), 26–36.
86.
WoolridgeJ. R.SnowC. C. (1990). Stock market reaction to strategic investment decisions. Strategic Management Journal, 11, 353–363.
87.
ZantoutZ.ChagantiR. (1996). New product introductions, shareholders’ wealth, and first-mover advantages. Journal of Financial and Strategic Decisions, 9(3), 49–61.
88.
ZantoutZ.TsetsekosG. (1994). The wealth effects of announcements of R&D expenditure increases. Journal of Financial Research, 17(2), 205–216.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
