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.) Market Return Date Nov 7 Nov 8 NOV 9 Nov 10 Nov 11 Nov 14 Nov 15 Nov 16 Nov 17 Nov 18 Nov 19 2.0 1.8 -1.7 -.6 2.8 -1.6 .1 .9 1.7 -1.7 1.8 Company Return (8) 1.6 1.6 -.3 -.5 1.0 3.3 .1 2.2 .0 Days from Announcement -5 Daily Abnormal Return Cumulative Abnormal Return -4 -3 -2 -1 0 1 2 3 4 5

Answer 1

Calculation of Daily Abnormal Retum and Cancelative Abnormal Return. Cumulative Abnormal Return -0.4 Date Now I Nov 8 Nov a Nov o Market Retention (23|| Company (49 Abnormal "Return dio 1.6 -0.4 1.6 -0.2 - IT 0.3 -104 -0.6 -2.0 -2.1 -0.6 - 05 2.8 10 -108 -3.9 100 -1.6 3.3 4.9 0.1 1.0 Nov 11 Nov 14 Nov 15 Nov 16 Nov in Nov 18 0.9 2.2 1.3 2:3 1.7 0.4 - 103 10 -1.7 -17 -0.7 Nov 19 1.8 0.2 1.6 -2.3 Abnormal Return = Company Return/ / Market Return % EX! Abnormal Return (Nov 7 = 1•6 - 200 -0.4 Cumcelative Abnormal Return = sum of preceeding Abnormal return and present Abnormal returen EX? Cumulative Abnormal Return (Nov 8) = Abnormal return of Nov Y + Nov 8 = -0.4+ (-0.a): -0.6 b cumulative Abrormal Return (Nov 8) = -0.6.