Restructuring in Telecommunications and its Market Impacts: An Event-Study Analysis

Abstract

This study presents an assessment of the changes in the telecommunications industry and their impact on market returns. Events were identified from a sample of global telecom companies and assessed in terms of their favorable or unfavorable impacts. Based on event-study analysis with generalized autoregressive conditionally heteroskedastic specification, the impact was tested after incorporating dummy variables of different lengths. The results show interesting patterns in how the market views restructuring in the business model of telecom companies, organizational structure, alliances and mergers, and technological platform changes. Countries differ in how they view telecoms restructuring and what changes are considered beneficial by investors.

Keywords:

• telecommunications restructuring
• industry changes
• event study analysis
• GARCH
• cumulative abnormal returns

ACKNOWLEDGMENTS

The authors wish to thank those who reviewed this article for their insightful comments and suggestions. We are grateful to them for helping us to strengthen our article.

Notes

1. The advantage of specifying a GARCH specification is that during bubble effect, such as IT bubble, the conditional variance, = will be inflated in the face of a bubble resulting in high and persistent volatility arising out of shocks (also referred to as innovations), , through the absorption parameter α and persistence parameter β so that conditional variance of the stock, remains high for high innovations, α _t s. Thus the impact of λ _i s are net of impact of NASDAQ index as well as subsequent inflated volatility (Figures 7 and 8) of the particular stocks return in the face of a postbubble scenario.