Essays on strategy change announcements and the market impact.

This thesis is composed of three essays on the market perception to strategy change announcements. Specifically, it tries to investigate the market reaction around the strategy change announcement date and these event firms’ pre-announcement and long-term performance. It also focuses on the content analysis of FACTIVA news and analyst reports that are about the strategy changes. Chapter Two shows that in line with the need for new strategies, firms with strategy change announcements have higher debt, less cash, worse operating performance, lower market expectations while still exhibit higher growth prospects, make higher investment and have higher R&D relative to publicly listed matched firms. This chapter also finds that strategy change announcements are associated with positive short-term abnormal returns. This suggests that market perceives the announcement as good news for the firms’ long-term development. Further at one-year after the announcement date, event firms exhibit better operating performance, potential long-term growth prospects, improved liquidity and are less leveraged. In Chapter Three, my findings show that higher occurrence of positive (negative) words in FACTIVA news are associated with more positive (negative) short-term stock performance. Furthermore, the effects of negative tones are greater relative to positive tones, especially when strategy change announcements are less informative. Increasing weights in positive (negative) tones are associated with higher (lower) abnormal returns. When comparing FACTIVA news with the subsequent annual reports, positive tones exhibit similar market reaction while negative words in annual reports tend to have higher market impact. Chapter Four finds that higher occurrence of positive (negative) words in analyst reports exhibit more positive (negative) stock returns. In fact, the market responds more strongly to negative tones compared to positive tones in analyst reports. Increasing weights in negative words are associated with more negative stock performance. This suggests that analysts are particularly important in propagating the potential risks and challenges related to the strategy changes. Furthermore, this chapter shows that market participants pay more attention to positive tones in analyst reports when strategy change announcements are more informative or supplemented with more forward-looking statements. In contrast, market participants focus more on negative tones when firms do not disclose adequate useful information to the public. In addition, positive (negative) tones in analyst reports are associated with more positive (negative) market reaction relative to annual reports