Intra‐lndustry Effects of Corporate Capital Investment Announcements

Sheng‐Syan Chen, Lan‐Chih Ho and Yi‐Cheng Shih

Financial Management, 2007, vol. 36, issue 2, 1-21

Abstract: We examine how announcements of corporate capital investments by one firm affect the stock prices of its competitors. We find that on average, rivals experience a signifi cantly negative valuation effect. The results suggest that for the sample as a whole, the competitive effect dominates the contagion effect. We further examine various factors that could potentially explain the heterogeneous intra‐industry effects of capital investment announcements. We find that rivals' share prices are more adversely affected when the announcer experiences a higher announcement effect or is the first mover in the industry. We also show that rivals experience a greater wealth loss when they have poorer investment opportunities or higher financial leverage.

Date: 2007
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