Investor Reactions to Twin Transformers Announcements

Abstract

Research Question: This study aims to empirically test the effects of the digital and sustainability announcements of twin transformation companies on their shareholder value creation. Motivation: This paper builds on the vast research regarding the Efficient Market Hypothesis, such as the work of Fama (1970, 1998) which discussed efficiency of the capital markets. Stock markets reflect new information and future prices cannot be predicted based on historical prices. Investors’ reaction, e.g., overreaction or underreaction are well documented. Furthermore, Del Rio Castro et al. (2021) present contemporary research findings related to the emerging issue of reaching Sustainability Development Goals and connects it with digitalization. Ukko et al. (2019) find that a company will reach superior financial performance if managers simultaneously devote their efforts to sustainability and digitalization. This research builds on the previous literature and tries to determine whether stock market recognizes such efforts and whether there is efficiency. Idea: The idea behind this research is to empirically determine whether investors react to twin transformation. Short- and long-term investors’ reaction was tested against sustainability and digitalization announcements of the companies that are recognized by professionals to follow the path of simultaneous transformation. Data: The sample includes companies from the Accenture research of the European twin transformation companies. Data implemented in this study were collected from several sources. Share prices were collected from the Yahoo Finance website, and event announcements from corporate websites. Tools: The methodology employed in this research is the event study methodology. Cumulative abnormal returns are calculated for different event windows and t-statistic is calculated to determine whether there is statistically significant investors’ reaction to sustainability and digitalization events. Findings: Sustainability announcements yield significant market reaction. Depending on the news content they can be both positive and negative. Moreover, dates when the sustainability ranking of some company was released are among the most significant sustainability events. In most instances, investors do not react to the information instantaneously, they need time to absorb it.  Investors do not find digitalization events to be significant. Contribution: To the best of the author’s knowledge, this is the first study to test investors’ reaction to digitally sustainable announcements of twin transformation companies.