Wealth Effect of International Investment Announcements : Evidence From Developing Market

Title

Wealth Effect of International Investment Announcements : Evidence From Developing Market

Author

Bany Ariffin Amin Noordinand Fauzias Mat Nor

Years

2006

 

Theoretical Basis

This research provides evidence on the efficiency of one of the fastest developing and largest emerging securities market (Kuala Lumpur Stock Exchange, KLSE) in the Asia Pacific rim with respect to foreign investment announcements.

This study focuses on the market reaction towards foreign investment announcements made by Malaysian Multinational Corporations (MNCs). There are three fundamental questions that this study attempt to address:

  1. Do foreign investment announcements contain new information which may creates market reaction?
  2. Do shareholders benefit from their firm’s foreign investment decisions?
  3. Do the characteristics of the foreign investments such as economic development of the target country influence shareholders wealth creations? In order to provide answers to these questions, an event study has been conducted.

Methods and Subjects

In that survey, it was also discovered that 17 companies have more than 20 ongoing foreign investment projects in various countries. Top of the list is Sime Darby with 110 ongoing foreign investment activities spanning in 19 countries. Second is Amsteel with 70 ongoing foreign investment activities.

Main Result

Table result shows the results of the 30 foreign investment announcements made by Malaysian MNCs expanding internationally into developed countries. On average, the announcements pertained to investments in developed markets are associated with a significant positive AR of 0.182 (t-statistic of 4.71). However, the other 30 announcements of propose expansion into developing countries produce AR of –0.00271 (t-statistic of –0.3744). The overall results suggest that foreign investments in developed countries by Malaysian MNCs generate higher positive returns for their shareholders than those investments into developing countries.

Conclusion

The results show that the AR of the securities are significantly positive surrounding the event period. This result implies that unexpected foreign investment announcements do contain new relevant information and at the same time do move the market.

 

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