The immediate impact of purchasing/sales contract announcements on the market value of firms: An empirical study in China

With the progressive realization of split share structure reform, China׳s stock market has undergone a fundamental change. The interests of major shareholders and minor shareholders are the same, resulting in greater attention to the market value management of listed firms. Therefore, the study of the relationship between firms׳ operational decisions and their stock market returns is of practical significance. In this study, we empirically investigated the reaction of the stock market to announcements of purchasing or sales contracts. Based on 318 such announcements made by publicly traded firms in China from 2001 to 2012, we used the event study method to investigate the economic impact of purchasing or sales contract announcements on shareholder wealth. The results indicate that several factors-contract type effect, industry effect, trade partner effect, scale effect, and capital structure-have positive and significant effects on firms׳ reactions in terms of market value. However, the lack of detailed descriptions in contracts about risk information, along with investors׳ limited risk awareness, causes risk prompts to have surprisingly little influence on the market value of firms. Furthermore, growth prospects and the ratio of the contract value to operating income have not been found to enhance firm value.