The Effect of Plant Closures on Market Value: Empirical Evidence from Pulp and Paper Industry 2004-2012

The aim of this study was to research how plant closure announcements affect the market value of the largest pulp and paper industry companies in the world. Also the effect of announcements on competitors was researched and whether the location of plants, timing, reasons for the closures, and characteristics of the closing firms and competitors have an impact on the results. The overall sample included 57 events in the years 2004-2012 and event study was used as a research method. Main theories were signaling theory and spillover effect. According to empirical results, investors consider plant closure announcements as a positive signal for market value. The spillover effect on competitors was, on average, positive and characteristics of the firms and closures had an effect on the results. Furthermore, the market generally predicted the closures and overreacted to them on the announcement day and after it. It is possible for corporate management and investors to learn from the results and use them as support for their decision making.