Title

The Information Content of FDI Announcements: Evidence from an Emerging Market

Publication Type

Conference Paper

Publication Date

10-1997

Abstract

This study examines the stock return responses to the announcements of foreign direct investments (FDI) by Singaporean companies. A standard event study methodology is used to ascertain the abnormal returns around the announcement day (day 0). The study covers the period from 1989 to 1994 with a sample size of 70 events. The announcement effect is positive and significant around the announcement day. The average abnormal return is 0.4913 percent on day 0, and the two-day (days 0 and 1) cumulative abnormal return is 0.9642 percent. However, the abnormal return is unequally distributed across the sample firms. A cross-sectional analysis reveals that the two-day cumulative abnormal return of a firm is statistically significantly related to (1) the industry the FDI is in, and (2) whether the FDI is independent in nature or is in the form of a joint venture. It is, however, found to be unrelated to the country of investment. The evidence further shows that investors who trade on the information regarding a company's impending foreign investment can earn abnormal returns, net of transaction costs, by buying the stock before the event period and selling it five days after the announcement date.

Discipline

Asian Studies | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Financial Management Association International Conference, Honolulu, October 1997

City or Country

Honolulu, HI

Comments

See article http://ink.library.smu.edu.sg/lkcsb_research/1167/ or http://dx.doi.org/10.1016/S1057-5219(97)90020-X

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