Megaproject announcements' impact on firm value: Evidence from international project finance deals

This study aims to investigate markets’ reaction to the announcement of megaprojects financed through Project Finance technique. Formulating results on a unique dataset of 501 observations of project announcements spanning over two decades, the analysis applied both event study and regression methodologies to quantify cumulative abnormal stock returns and identify the firm-, deal-, and location-specific variables influencing investor sentiment. The event study’s results show that the wider windows specifically (-10,+10) are statistically significance with the average cumulative abnormal return of +2%. This indicates that the market reacts positively to megaproject announcements that are Project Financed in a delayed manner to process the complex information released with the announcement. However, the narrower windows do not show evidence that are statistically significant of the market reactions to the megaproject announcements. Firm-specific variables like Ownership share percentage in the project show a significant positive correlation in most windows, while liquidity of the sponsoring firm shows a positive correlation in only (-1, +1) event window. Deal-specific factors like Relative project size show a positive correlation with the cumulative abnormal return in the narrower event window as well, however Offtake agreement and multiple sponsorship in the deal are shown to be negatively correlated in the wider window specifically in the (-5, +5) event window. Multiple conclusions and implications on theory and practice are drawn from the results including the surprising negative correlations of multiple sponsorship and offtake agreements. Which show that investors penalize the sponsoring firms that participate in the megaproject jointly with other firms and penalize the long-term agreements that may be perceived as an additional risk rather than a tool for mitigating risk.