The impact of Brazilian companies investment decisions in the value of its stocks negotiated in São Paulo Stock Exchange over the period 1996 through 2003

Abstract

The purpose in this study is to investigate the impact of Brazilian companies investment decisions, released by means of advertisements, in the value of its stocks negotiated in the São Paulo Stock Exchange over the period 1996 through 2003. The theoretical axle was based on the traditional model of corporate valuation, suggested by Modigliani & Miller (1961), whose auxiliary hypothesis is the argument that managers seek to maximize the market value of the firm in making their corporate investment decisions. Assuming the existing link between the stock market and companies investment decisions, an event study was carried out in order to verify the existence of statistically significant abnormal returns around the dates on which firms publicly announced their future capital expenditure plans. The results have shown that managers do reveal information that is relevant to the valuation of their firms by means of announcements about the firm's capital expenditure plans and that stock market usually reacts consistently with the joint predictions of the market maximization hypothesis and the traditional model of corporate valuation.