Market Reaction To Joint Venture Investment Announcements: Evidence From Chinese Stock Market

The results of this study are based on a sample of listed domestic firms that have publicly announced their investment decisions during the period from June 2000 to March 2007. Those firm's shares are transacted only in Shanghai Stock Exchange, which are called A share. Event study methodology is employed to investigate whether there are any market reactions to the release of joint venture investment decisions. Statistics show that market reaction in the Day (-2, -1) is significant, especially it is negative. The essay then turns to introduce some variables to explain such phenomena. OLS regression results show that there is significantly negative relation between the cumulative abnormal returns of Day (-2, -1) and free cash flow variable. To some extent, I find evidence support the Jensen's free cash flow hypothesis in 1986.The essay is composed of four parts. In chapter1, it mainly introduces the previous studies in this related field. Chapter2 is research design, which includes how to lead an event study and sample selection. Finally T test of CAR was conducted so that the essay can figure out whether or not there are any market reactions to joint venture investment decision announcement. Chapter3 basically discusses the reason those variables are chosen to explain such phenomena. Besides, regression results and some analysis based on the regression results are presented in this chapter. The last chapter makes some conclusions and discusses the essay's further improvement.There are something supposed to be special in this essay. First of all, there is no essay in China conducting the test of joint venture investment announcing effects; secondly, in order to collect data as"clean"as possible, I review the announcing companies'other reports released in 5 days around the announcing day so that I can exclude those contaminated sample; thirdly, to explain the market reaction to the joint venture investment decisions announcement, free cash flow variable is introduced. To some extent, I find evidence supporting the Jensen's free cash flow hypothesis.