Does Turkish Stock Market React to Public Announcements of Major Capital Expenditures?

Abstract

Research in quantitative management decision behavior using financial measures is a rapidly growing field. The issue whether and how managerial characteristics and decisions affect corporate behavior and stock performance has investigated in previous research in literature. Recently, many researchers have been pointing out some criticisms to the application of strategic investment decisions and their effect on firm's financial situation. These decisions may include restructuring, new process technology, organization change, technical projects, joint ventures, diversification. The purpose of this study is to investigate the stock market reaction to public announcements of corporate strategic investment decisions by observing companies listed in the Istanbul Stock Exchange (ISE) 30 Index. The stock market reaction to announcements of strategic investment decisions can be thought of as having two components: The first one is price reaction which reflects general factors influencing managerial strategic decisions and firm valuation; and the second one is price reactions to information that announced to the public through firm management. In the literature there are several hypotheses that try to explain stock market reaction to public announcements of corporate strategic investment decisions. One of the most widely known hypotheses is The Shareholder Value Maximization hypothesis which is also tested in this study. Shareholder value maximization is usually accepted as the appropriate goal in many business circles. In this study, based on Shareholder Value Maximization hypothesis we assume that there is a positive stock market reaction to corporate investments because the stock markets reward managers for developing strategies that increase shareholder wealth. The implications of a positive reaction by the stock market to investment announcements are vital for corporate strategy research, management practice and effectiveness and investment decisions (C) 2011 Published by Elsevier Ltd. Selection and/or peer-review under responsibility 7th International Strategic Management Conference