Question

On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.) Date Nov 7 Nov 8 Nov 9 Nov 10 Nov 11 Nov 14 Nov 15 Nov 16 Nov 17 Nov 18 Nov 21 Market Return ($) 1.9 1.7 -1.6 -0.6 2.7 -1.5 0.1 0.9 Company Return (%) 1.5 1.5 -0.4 -0.6 1.0 0.1 2.1 -1.6 انا و نN Days from Announcement Daily Abnormal Return Cumulative Abnormal Return

Answer 1

Step1: We need to calculate Abnormal Return, this can be calculated as taking off market return from stock return, this is done as below with the formula and the result as in below screenshots:

Market Return Company Return Abnormal Return Date 7-Nov 1.9 1.5 -0.4 8-Nov 1.7 1.5 -0.2 9-Nov -1.6 -0.4 1.2 10-Nov -0.6 -0.6 0 11-Nov 2.7 1 -1.7 14-Nov -1.5 3.2 4.7 0.1 0.1 15-Nov 0 0.9 16-Nov 2.1 1.2 17-Nov 1.6 0.3 -1.3 18-Nov -1.6 0 1.6 21-Nov 1.7 0.2 -1.5

D E F Market Return Company Return Abnormal Return 1.9 1.5 -E4-D4 1.7 1.5 =E5-D5 -1.6 -0.4 -E6-D6 -0.6 -0.6 -E7-D7 2.7 -E8-D8 -1.5 3.2 =E9-D9 0.1 0.1 -E10-D10 0.9 2.1 -E11-D11 1.6 0.3 -E12-D12 - E13-D13 |-1.6 0 1.7 0.2 -E14-D14 LL

Step 2: We now accumulate the first abnormal return with the next to get Cumulative abnormal return as in below screenshot:

Market Return Company Return Abnormal Return Cumulative Abnormal Return Date 7-Nov 1.9 1.5 -0.4 -0.2 -0.6 8-Nov 1.7 1.5 1.2 9-Nov -1.6 -0.4 1 -0.6 -0.6 1.2 10-Nov 0 -1.7 11-Nov 2.7 1 -1.7 4.7 14-Nov -1.5 3.2 0.1 4.7 15-Nov 0.1 0 1.2 1.2 16-Nov 0.9 2.1 0.3 -1.3 17-Nov 1.6 -0.1 18-Nov -1.6 0 1.6 0.3 21-Nov 1.7 0.2 -1.5 0.1

We've arrived the final solution as above. We can see the used formula as below:

D E F G Abnormal Return Market Return Cumulative Abnormal Return Company Return 1.9 1.5 -E4-D4 1.7 1.5 -E5-D5 -F5+F4 -1.6 -0.4 -E6-D6 =F6+F5 -0.6 -0.6 -E7-D7 =F7+F6 2.7 -F8+F7 1 -E8-D8 -1.5 3.2 -E9-D9 F9+F8 -E10-D10 0.1 0.1 F10+F9 0.9 2.1 =E11-D11 =F11+F10 =E12-D12 1.6 0.3 F12+F11 |-1.6 -E13-D13 F13+F12 1.7 0.2 =E14-D14 =F14+F13