How do firm characteristics affect the market reaction to investment announcements: ISE case

This study examines the market reaction to corporate investment announcements and firm characteristics which could explain the direction and strength of this reaction. The data comprise the cross-border investment announcements made by the listed firms on the Istanbul Stock Exchange (ISE) between 2003 and 2007. The market reaction is measured by abnormal returns around the announcement period. Abnormal returns after the announcement date (t = 1) are positive and statistically significant indicating a favorable market reaction to the investment announcements. The study also examines whether a firm's characteristics could explain the excess returns around the announcement period. The investment opportunities, free cash flow, firm size, debt ratio, dividend returns and variability of daily stock returns are used as explanatory variables in the regression model. The findings show that the excess returns around the announcement period are not affected by the investment opportunities and free cash flow levels of firms. On the other hand, the excess returns are found to be affected by the dividend returns and the variability of daily stock returns.