STOCK PRICE REACTION OVER INTERNATIONALIZATION PROCESS: AN EVENT STUDY ON A SAMPLE OF ITALIAN MEDIUM-SIZED LISTED FIRMS

This study is grounded on the internationalization theories of the firm and discusses how different strategic and operational choices in the international environment can affect firm performance and thus shareholders value. The latter is based on share prices reflecting long term expectations on profits and cash flows. This contribution, by applying the event study methodology, provides detailed evidence on the value generating effect of different equity entry modes. The survey focuses on a sample of 96 announcements of international investments performed by all Italian medium-sized firms listed on the Italian Stock Market during the years from 2000 to 2006. Our research shows a positive and significant market reaction to the announcement of internationalization strategies. The results are largely affected by the abnormal return of high-equity operations carried out in advanced economies. Low-equity entry modes do not show any significant market reaction as well as the international operations performed in emerging countries. Moreover, we also find, according to common international evidence, that the relative size of the deal accounts for the results: large deals have led to highly significant price reactions.