| This paper studies the market reaction around stock increase announcements by controlling shareholders of listed companies and the relationship between the market reaction and a series of influential factors that related to the characteristics of the company and the stock increase activity. This study selects a sample of 109 stock increase announcements by controlling shareholders from August 27th 2008 to December 31st 2009 in China’s two main stock markets and does empirical studies to analyze the abnormal returns in the short term around the announcements and in the long term, and then analyze the factors that influence the abnormal returns. Results show that when the stocks are experiencing a decreasing period, shareholders usually increase the stocks at the lowest point. Rightly after that, market reacts positively towards the stock increase announcements by causing significantly positive abnormal returns and cumulated abnormal returns on the announcement day and days afterwards in the short term. There are also positive buy-and-hold abnormal returns in the long term of 12 months,18 months, and 24 months, but not quite significantly. Market reactions don’t differ among industries significantly, but manufacturing industry, as the industry with the largest amount of increase announcements, suffers the lowest abnormal returns significantly. State-owned companies earn significantly higher abnormal returns than non state-owned companies during period around the stock increase announcement. The abnormal returns earned are higher for companies with market-book value ratio less than one than those with ratio larger than one, but the differences are not significant. The regression shows that shareholders holdings, increase percentage and equity intensity is positively related to the cumulated abnormal returns of the stock increase announcements, company size is negatively related, while debt ratio and market-book value ratio is not significantly related. |
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