Market Reaction to Corporate News and the Influence of the Financial Crisis
Having obtained and classified into news categories a comprehensive dataset of corporate press releases issued between April 2006 and August 2009, we analyze stock price reactions to various types of news. Besides confirming earlier findings regarding the market reaction to financial news, we document strong responses to news about corporate strategy, customers and partners, products and services, management changes, as well as legal developments. We show that return volatility increases and liquidity decreases following most news announcements. Furthermore, we find that the market response to certain types of news changed during the period of the financial crisis. For example, news that are likely to result in higher and less volatile future cash flows, such as announcements of corporate reorganization, new customers and partners, new products, FDA and European drug approvals, as well as legal settlements, led to more positive price reactions; announced plans to raise funds through equity or debt offerings were perceived less negatively; and the market reaction to announcements of share repurchases became even more positive than during the pre-crisis period.
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