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Abstract

When selecting projects under a limited budget, a firm should implement the project that will return the most value. Ultimately, firm value is measured by stock price, which can be impacted when the firm makes a major announcement. This paper shows that announcements of energy management projects correlate with a 21.33% increase in stock price within 150 days of the announcement. This increase is in addition to the risk-adjusted return the firm would normally experience . For example, during a "bull market" a firm's expected return was 10%. After the announcement, the return would increase by 21.33%, for a net return of 31.33%. These results suggest that investors react positively to energy management projects. This outcome demonstrates one more strategic incentive for firms to implement energy management projects.

INTRODUCTION

When selecting projects under a limited budget, a firm should implement the project that will return the most value. Ultimately, firm value is measured by stock price, which can be impacted when the firm makes a major announcement. This paper shows that announcements of energy management projects correlate with a 21.33% increase in stock price within 150 days of the announcement. This increase is in addition to the risk-adjusted return the firm would normally experience . For example, during a "bull market" a firm's expected return was 10%. After the announcement, the return would increase by 21.33%, for a net return of 31.33%. These results suggest that investors react positively to energy management projects. This outcome demonstrates one more strategic incentive for firms to implement energy management projects.

If "publicity-gaining" potential is a decision factor during project selection, then a new product line or joint venture would usually be selected over an EMP. But is this a fair comparison? There has not been any research to determine if an EMP announcement increases a firm's stock price. In theory, it should because most EMPs increase profits (via cost reduction instead of increased revenues ). From a cash flow perspective, an EMP is equivalent to any other profit-enhancing project.

This paper seeks to determine whether an EMP announcement correlates with an abnormal increase in a firm's stock price. If such announcements positively impact stock price, then the firm has one more incentive to implement EMPs

LITERATURE REVIEW

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For more than 20 years, Eric A. Woodroof, PhD, Principal at Profitable Green Solutions, LLC is a leading keynote speaker on energy management, energy efficiency and sustainability. He has worked onstage with Bill Clinton, Arnold Schwarzenegger, Condoleezza Rice, and many others.

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