Title: Policy hazards, opportunism and the stock market reaction to the international expansion of telecom firms

Authors: Esteban García-Canal; Pablo Sánchez-Lorda

Addresses: Dpto. Administración de Empresas, Facultad de Economía y Empresa, Universidad de Oviedo, Avda. Cristo s/n. 33071 Oviedo, Spain ' Dpto. Administración de Empresas, Facultad de Economía y Empresa, Universidad de Oviedo, Avda. Cristo s/n. 33071 Oviedo, Spain

Abstract: This paper analyses the extent to which policy hazards may affect the stock market reaction to internationalisation decisions made by telecommunication firms. Building on transaction cost economics, we predict that the stock market should react negatively to increases in the policy instability in the host country, and that the entry mode should moderate the relationship between policy instability and the stock market reaction to international projects. To test these predictions, we first use the event study methodology to estimate the abnormal returns obtained by firms expanding abroad, and then run several multiple linear regression models to estimate the effects of the policy risk and the mode of entry chosen on these abnormal returns. Our results show that the stock market has not reacted negatively to those international projects carried out in conditions of policy instability. Investors only value policy instability negatively when the entry mode is a total acquisition.

Keywords: policy hazards; internationalisation; strategic alliances; joint ventures; mergers and acquisitions; M&A; telecommunications industry; international management; Europe; telecoms firms; opportunism; stock market reaction; transaction cost economics; TCE; policy risk; abnormal returns; stock markets; policy instability; entry mode; market entry.

DOI: 10.1504/EJIM.2013.057105

European Journal of International Management, 2013 Vol.7 No.6, pp.719 - 741

Available online: 11 Oct 2013 *

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