Political Risk in Quebec, Firm Valuation, and Business Relocation Announcements

The author notes that a significant number of companies have relocated their facilities outside Quebec in response to the political uncertainty in the province. The author contends that this political instability, which emanates from the separation demand supported by the Parti Québécois, has a rather long history in the province and provides a unique research opportunity to assess the magnitude and direction of political risk on asset valuation. The author explores the effects of the announcements of business relocation decisions by examining stock market's reaction to such announcements. In particular, he studies the difference in the market's response to the relocations from Montreal and from the rest of Canada. Further, he sheds light on the effects of the information conveyed by the relocation announcements on stock prices. The author notes that previous research has reported some evidence from the U.S. on the effects of the announcements of relocations. Benefiting from the event study methodology, the author found statistically significant and positive reaction to such announcements. More importantly, he found statistically significantly different abnormal returns in favor of Montreal relocations. That is, firms relocating from Montreal experienced statistically significantly higher stock prices relative to those which relocate from other provinces. The author attributes this difference to the existence of political risk in Quebec.

Master's Thesis

Concordia University

Montreal

1999

vii-92p.

en