The Impact of Capital Reduction Announcements on Stock Prices

Abstract

This study employs a rigorous research methodology, including event study methodology and multiple regression analysis. We examined domestic listed and OTC companies from January 1, 2011, to December 31, 2023. The event study methodology allowed us to analyze the impact of capital reduction announcements on stock prices. At the same time, the multiple regression analysis helped us to identify the factors influencing cumulative abnormal returns (CAR). The empirical results are as follows: Capital reduction announcements lead to positive cumulative abnormal returns on stock prices. Return on equity (ROE) significantly impacts the effect of capital reduction announcements. Firms with stable ROE instill greater investor confidence, positively influencing stock prices. The debt and cash flow ratios positively and significantly affect the impact of capital reduction announcements. Additionally, firm size positively and significantly impacts capital reduction announcements. This paper contributes by revealing the positive impact of capital reduction announcements on stock prices and confirming the significant roles of return on equity, debt ratio, cash flow ratio, and firm size in this effect. These findings are crucial for investors and financial professionals as they provide insights into the factors that can influence stock prices and help make informed investment decisions.