STOCK PRICE REACT TO INVESTMENT REGION ANNOUNCEMENT: THE CASE OF LISTED ELECTRONIC COMPANIES Yi-Hsien Wang Department of Finance, Yuanpei University, No. 306, Yuanpei St. Hsin Chu 30015, Taiwan ROC firstname.lastname@example.org Pei-Shan Syu Department of Finance, Yuanpei University, No. 306, Yuanpei St. Hsin Chu 30015, Taiwan ROC email@example.com Wan-Yi Tsai Department of Finance, Yuanpei University, No. 306, Yuanpei St. Hsin Chu 30015, Taiwan ROC firstname.lastname@example.org Chi-Hsin Wang Department of Finance, Yuanpei University, No. 306, Yuanpei St. Hsin Chu 30015, Taiwan ROC email@example.com ABSTRACT This study utilizes listed electronic companies data to explore the difference of announcement of investment region (China and Taiwan) on stock price reaction during 2000-2006. The empirical result shows that investment in China has significant abnormal return before 3 days, and abnormal return appears at days -14 and -10 in Taiwan. Keywords： Depositary Receipts, Event Study, Abnormal Returns, Announcement Effect 1. INTRODUCTION In recent years, Taiwanese industry promptly developed, electronic industry not only has become main stream of Taiwan stock but also has become combined with prosperity and decline of Taiwan economy. Therefore, we chosen electronic stock regard as portfolio one section, become investor prior choice, however, industrial structure diversified highly and globalization trend for electronic industry, which will confront with competition result in firm gradually moving-abroad, economies and trade territories enlarged with positive benefit for exportation of Taiwanese electronic industry. Furthermore, economic environment had changed for many years that made investors to develop outside gradually. Owing to economic growth of Taiwan had reached the highest point and execution of economic policy of government, therefore the results restricted to develop for many corporations. Therefore companies want to obtain the biggest yield, they should choose to overseas investment. Afterwards connected cultural heritage detection, some literatures find that the news of listed corporation goes into overseas investment has the effect of positive and non-significance for shareholder wealth. Nevertheless that different investment areas for stockholder wealth is not obvious distinction, but the reaction of stock market for different investment type is different. Overseas Merger & Acquisition (M&A) news was disclosed for acquiring firms can gain significant cumulative abnormal return (Franks et al., 1989; Duggal, 1995). In addition American corporation with joint venture type carry on outward investment for stock price influence, on announce that day have not outstanding negative abnormality remunerate (Finnerty et al., 1986; Doukas et al., 1988; Lee et al., 1990, Chung et al., 1993; Borde et al., 1998).On international joint venture modus carry on china investment, for stockholder, then get outstanding positive accumulation riches effect, (Chen et al., 1991). Currently influence stock return factor have many, as King (1996) influence factor is classified into market factor, industry factor and company factor etc. three-factor model. Company factor is can capitalize on portfolio lower not system risk, example: profit, dividend etc. factor. General investment the public usually not have analyst or investment organization profession competency, can't quick receive connected message. Investor usually by enterprise public of information as investment basis, on announce day in front and back for stock price produce of abnormality change influence for what reason. Because this paper event study inquire into corporation graveness investment announce to object stock investment of influence. By extensive domestic listed company investment announce connected cultural heritage, take into classification inquire into, aim at investment china with no china of location research sample, announce day to stock price influence, meanwhile observation market observation information of reflection whether have efficiency, by understanding connected research of development and current conditions, beg more exactitude of result. The paper is organized as follows. Section 1 sets out the purpose of this document and provides a review of prior research on the listed companies investigated announcement. Methodology and data are described in Section 2, with Section 3 discussing the results, and Section 4 presenting the conclusions. 2. LITERATURE 2.1 Data source The sample data is from January 1, 2000 to March 20, 2006 for all listed electronics company of stock price and weighted stock index etc., draw from Taiwan Economic Journal include listed electronic stock graveness investment event, investment area, investment amount, equity control, above-mentioned data from Market Observation Post System. These data was examined as the influence of investment area of listed electronic company for stock price reaction, we adopted event study to investigate the data choice period whether stock price return is significant and positive relation. 2.2 Estimation period and event period Because of the exposed company has important investment event, actually this event should be produce before one day. Therefore, this study acquired the time point of the listed companies investigated announcement by the public information and defined the time point as Day 0 (event day). Consequently, the estimation period is from Days -105 to -16. The event window of interest begins from Day -15 and ends on Day +15, and entire observational period covers 121 trading days. The each period related show to Fig.2.2.1 Estimation period Event window -105 -15 0 +15 Event day Observation period Fig.2.2.1 The diagram of event studies the period 2.3 Event study and methodology This research applied market model to inquire into Taiwanese listed companies investigated announcement which impact on stock price. Therefore, it produces the abnormal returns (AR). The method had already applied extensively in the finance and accounting. So far, the research approach of the evidence is still important. The market model of the event study is as follows: The expected return was derived using the market model where the model parameters and were obtained from the estimation period. The market model hypothesis is the linear relations between the individual stock return and the market return, namely Rit i i Rmt it (1) Where Rit is the return rate on stock i on day t and Rmt is the return rate on the TAIEX on day t. i is the intercept term, i is the Beta modulus, that is system risk of individual stock, it is the residual error term. Examining abnormal return whether AR significantly differ from zero. In this research, we make use of data characteristic choice to choose suitable test statistics, and examine the event window whether have outstanding abnormal return, the influence of understanding particular announcement event for stock price. Thus, if we want to proceed testing, we first have to calculate (average AR; AAR) definition for N 1 AAR E N AR i 1 iE (2) Where, N is corporation number, for event term n corporation AR. In addition, researcher can depend on goal or some factor to accumulate the AR of event term that be called cumulative average abnormal return (cumulative AAR; CAAR). Cumulative average abnormality remunerate defines as follows, 2 CAAR( 1 , 2 ) AAR E E (3) 1 We used individual stock AR to standardize, and calculated AAR and CAAR. Object is to transform the distribution of AR into standard normal distribution, correspond with identical distribution. This method is ordinary cross-sectional method, which main goal in order to overcome the variation of return rate, for event period, owing to the question of event-induce variance. Therefore, we use the variation of estimate term to estimate the variation of event term AR is not larger meaning. AAR E AAR E t 2 Var ( AAR E ) 1 N ( ARiE AAR E ) N ( N 1) i 1 (4) 3. RESULTS AND DISCUSSION 3.1 The announcement effect of the electronic industry investigated announcement in China For electronics type stock in china investment announcement for stock price change of influence sample market model and examination sample as follows form 4.1 show, on the thirty day event observation medium, on declaration that day abnormality remunerate is 0.0605, t value is 0.6249, under on outstanding level α=0.01 and not outstanding. Event term on the declaration after three day average abnormality remunerate is negative. When company decision investment on china area after, have to event day before seven day announce board of directors investment message, and event day before one day mark decision. But form 4.1 among detection, t=-8 day not outstanding effect, display investment message don't convene board of directors before leak out, on the contrary t=-3 day present outstanding to positive result, this maybe because consideration cross-straits government nervous relation, just event day before three day leak out news. But t=0 day, news announce the public understand, stock market not positive reaction, cause t=-1, -2, -3 day stock price fall, display investor for electronics type stock investment china of news declare incipiency indicate negative attitude; but on t=4、5、6 day present not outstanding positive result. In Taiwan listed electronics company investment to China because of two sides policy of different, can cause news not accurate of result, through short time observation after, investor think company investment behavior definite can to company bring have positive benefit, just give positive attitude response. generally speaking, investment area on china of investment massage have perdurable, although china have cost cheap, market large, raw material abundant environment advantage, but because cross-straits government nervous relation, make investor on under process many today observation, just more audacious buy in company stock, stock price produce abnormality remunerate. But stockholders uncertain to company have confidence, only the company had slight commotion, stockholders sell out hold stock, on the contrary stock price abnormality fall. Table 3.1 AR around investigated announcement date of all sample in China Event Event AR t value AR t value window window -15 -0.0514 - 0.5036 0 0.0605 0.6249 -14 0.0077 0.0776 1 -0.0349 -0.3636 -13 0.0825 0.8405 2 -0.1612 -1.7159 -12 -0.0796 -0.8977 3 -0.0108 -0.1155 -11 -0.1128 -1.1749 4 0.0650 0.6582 -10 0.1026 1.0691 5 0.0977 0.9695 -9 -0.1032 -1.0134 6 0.0353 0.3547 -8 -0.0110 -0.1105 7 0.2568 2.6044 ** -7 0.1122 1.1162 8 -0.0038 -0.0418 -6 -0.0144 -0.1502 9 -0.1015 -1.0936 -5 0.0108 0.1131 10 -0.0308 -0.2981 -4 0.1346 1.4328 11 0.1720 1.8126 -3 0.2822 2.8363 ** 12 0.0289 0.2959 -2 0.0500 0.5334 13 -0.0411 -0.4312 -1 -0.0925 -1.0050 14 0.1393 1.3816 15 -0.0329 -0.3454 Note: 1. The * (**) denotes statistical significance at the 0.05 (0.01) level. 2. The t value is computed by Standardized-Residual Cross-Sectional Method. 3.2 The announcement effect of the electronic industry investigated announcement in Taiwan For electronics stock in China invest announce to stock price change effect sample market model and examine sample as follows form Table 3.2, on 30th days event observe mid-term, in fluctuation of day of stock price abnormal return is 0.0927, t is 0.2576, on notable level α=0.01 descend not notable. Event period in fluctuation of stock price after two days average excrescent guerdon rate also to positive relate. Aim to t =-14 and t =-10 two days present notable and is positive excrescent guerdon rate, it indicates result of appear on market company invest of Taiwan news, shareholder convene board of directors a few days age leak out, company already have person advance have learned that this news, and outwardly spread, therefore cause company stock price to convene board meeting previous to present notable and positive relate. Generally speaking, investor to invest district on Taiwan to graveness fluctuation of stock price to do positive evaluate, on investor succession buy into this company stock, make stock price produce excrescent guerdon rate, but investor to this fluctuation of stock price news to positive evaluate can’t handle of long, make accumulate excrescent guerdon rate gradual stable, company stock price go back originality normal orbit. In Taiwan invest, maybe stock market rise a fall limit and market efficiency problem, cause odd day stock price shortage to news content respond completely, in don't respond completely reach balance stock before, on stock market investor possibility rob into rob out to become over rise over fall trend. Although at fluctuation of stock price after third day have the negative of excrescent guerdon rate, but whole to say, have positive information result. Table 3.2 AR around investigated announcement date of all sample in Taiwan Event Event AR t value AR t value window window -15 0.4163 1.1522 0 0.0927 0.2576 -14 1.0164 2.9619** 1 0.2101 0.6384 -13 0.2573 0.6593 2 0.0604 0.1615 -12 0.5722 1.7140 3 -0.0704 -0.2017 -11 0.1058 0.3175 4 05575 1.5004 -10 0.8123 2.0577* 5 0.3808 1.0121 -9 -0.2571 -0.6742 6 0.2817 0.7156 -8 -0.4165 -1.4241 7 0.0826 0.2132 -7 -0.0746 -0.1904 8 -0.2923 -0.7397 -6 0.1111 0.3592 9 -0.5858 -1.7148 -5 -0.0888 -0.2735 10 0.6326 1.7265 -4 0.5721 1.7265 11 -0.2850 -0.7393 -3 -0.3324 -1.0840 12 0.2807 0.6358 -2 0.1281 0.3855 13 -0.3536 -1.1534 -1 0.1569 0.5421 14 0.3004 0.8945 15 0.3288 0.9358 Note: 1. The * (**) denotes statistical significance at the 0.05 (0.01) level. 2. The t value is computed by Standardized-Residual Cross-Sectional Method. 3.3 The announcement effect of the electronic industry to compare investigated announcement in China and Taiwan Listed company carry on invest money in China, because subjected to a government limit, so money can not exceed $50,000,000 and exceed this money can not exceed carry on direct invest, get through third ground invest or through subsidiary carry on invest, this is many limit cause company to carry on China invest have timid. Appear on market company in China carry on invest amount of money, but China market environment, human resource, produce source also compare Taiwan have attraction, cause currently in Taiwan main of appear on market electronics company gradual will productively in Taiwan call away to China or other everyplace. In Taiwan invest behavior can because government relate to have change, not equal to invest of China pure. Because of Taiwan stock market rise a fall limit with market effect is straightforward problem that cause odd day stock price shortage of news content complete respond. And don't content complete respond reach balanced stock price, on stock market investor possibility rob into rob out to become over rise or over fall trend. News leak out speed Taiwan compare China faster, because cause this factor can region difference, it invest of China company, because news deliver is slow, make stock price present notable only event day before front three day; because region Relate to Taiwan, news flow is fast, cause news advance before event front 14 and10 day leak out. 4. CONCLUSION This paper finds that company carries on investment announcement in China that has positively excess return for day -3; this result shows, investment news has disclosed before information publishing. Nevertheless, talk invest in Taiwan, announce day not notable abnormality remunerates, investment announcement has positively abnormal return for days -14 and -10. These results show, meeting produce this result of reason is because invest news early in news release leak out, investment message has disclosed before information publishing that is very serious especially in Taiwan. However, this research shows not all momentous investment announcement event can obtain excess return. Therefore, listed corporation faces grave investment announcement, investors need to appraise the content of investment affairs carefully, select a event that can increase company value and acquire love by, general investor, we aim at investment announcement type whose the best investment time point is also dissimilar. This paper suggests that investor should refer the above-mentioned to proced investment, such can obtain higher investment return. REFERENCES Borde, S. F., Whyte, A. M., Wiant, K. 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