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The impact of the North American free trade agreement on multinational firms: Evidence from the stock market

1995; Elsevier BV; Volume: 4; Issue: 2 Linguagem: Inglês

10.1016/1061-9518(95)90015-2

1879-1603

WaQar Ghani, John L. Haverty,

Financial Markets and Investment Strategies

This article investigates the stock market reaction associated with the passage of the North American Free Trade Agreement (NAFTA) for firms that cited NAFTA as a favorable development in the Management Discussion and Analysis or the President's Letter to the Shareholders sections of their annual reports. A standard event-study methodology similar to that described in Dodd and Warner (1983) is used to examine the market reaction to events associated with NAFTA's passage. The empirical evidence shows significant positive abnormal returns behavior around the date of the U.S. House of Representatives' approval of NAFTA for these firms. The results suggest that investors responded favorably to those firms which were perceived to be major beneficiaries of NAFTA. These results also corroborate management's assertions about the positive effects of NAFTA.