The immediate impact of purchasing/sales contract announcements on the market value of firms: An empirical study in China

Jun Yang, Wei Lu and Chunhui Zhou

International Journal of Production Economics, 2014, vol. 156, issue C, 169-179

Abstract: With the progressive realization of split share structure reform, China׳s stock market has undergone a fundamental change. The interests of major shareholders and minor shareholders are the same, resulting in greater attention to the market value management of listed firms. Therefore, the study of the relationship between firms׳ operational decisions and their stock market returns is of practical significance. In this study, we empirically investigated the reaction of the stock market to announcements of purchasing or sales contracts. Based on 318 such announcements made by publicly traded firms in China from 2001 to 2012, we used the event study method to investigate the economic impact of purchasing or sales contract announcements on shareholder wealth. The results indicate that several factors—contract type effect, industry effect, trade partner effect, scale effect, and capital structure—have positive and significant effects on firms׳ reactions in terms of market value. However, the lack of detailed descriptions in contracts about risk information, along with investors׳ limited risk awareness, causes risk prompts to have surprisingly little influence on the market value of firms. Furthermore, growth prospects and the ratio of the contract value to operating income have not been found to enhance firm value.

Keywords: Empirical research; Market value management; Contract announcement; Stock market return (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:156:y:2014:i:c:p:169-179

DOI: 10.1016/j.ijpe.2014.06.002

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