Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 37

Market Reaction to Investment Announcements

Note that the price increases tend to be small, since these announcements tend to

affect value by only small amounts. The effect seems to correlate with the

weightiness of each announcement, being lower for product strategy

announcements (which might signify little or no real investment) and being

higher for the other three.

Markets also tend to be discriminating and look at both the type of business

where the R&D is being spent (Intel versus Kellogg) and the track record of the

managers spending the money.