Purchase Or Sales Contract And Stock Market Reaction: An Empirical Study

With the progressive realization of the split share structure reform, China’s stockmarket has undergone a structural change, the interests of major shareholders and minorityshareholders are in line, resulting in increasingly high attention of the listed companies ontheir market value management, company management through the corporate operationaldecisions to affect the company’s market capitalization is more and more common.Therefore, the study of the relativity between companies’ operational decisions and theirstock market return is of practical significance. The purpose of this paper is to study theinfluence of purchase or sales contract announcements on listed companies’ market value,and find out the factors that affect companies’ stock market return in such circumstances.This paper empirically investigates how the stock market reacts to purchase or salescontract announcement, which is considered as an indication of the capability of relatedfirms to do well in the market. The evidence is based on an analysis of113purchase orsales contract announcements made by publicly traded firms in China during2001-2011.The result shows that stock market will have a positive reaction towards firms’ purchase orsales contracts. When the announcing firm is the supplier, the stock market reaction willbe more positive. Investors will often ignore facts such as growth prospects, firm size anddebt-to-equity ratio when they make decisions in situations caused by contractannouncements. The stock market return is positively related to the proportion of contractprice in total sales.