Effects of Contract Announcements on the Value of Construction Firms

Abstract

Winning a new contract has an important implication for the sustainable growth and survival of construction firms in competitive market environments. Considering this and the limited literature on market analysis, this paper aimed to explore the effects of contract announcements on the market value of firms in the context of construction industry. Through a rigorous sample-screening process, this paper selects and analyzes a total of 377 contracts awarded to Korean contractors between 2000 and 2010. Using the standard event study methodology, cumulative abnormal returns (CARs) are estimated to evaluate the overall level of project success and to compare groups categorized according to project characteristics. The results indicate that the stock market generally responds positively to contract announcements. In addition, contracts awarded during economic upturns are more likely to be favorably evaluated than those awarded during economic downturns.