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The Effect of War Risk on Managerial and Investor Behavior: Evidence from the Brussels Stock Exchange in the Pre-1914 Era

Published online by Cambridge University Press:  23 June 2020

Gertjan Verdickt
Gertjan Verdickt*
Affiliation:
Research Fellow, Department of Accountancy and Finance, University of Antwerp, Prinsstraat 13, 2000Antwerp, Belgium and Assistant Lecturer, Department of Banking and Finance, Monash University, Melbourne, Australia. E-mail: [email protected].
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Abstract

With two news-based measures on war, I document that managers mitigated war risk through dividend cuts, arguably to establish a war chest. Moreover, I find that companies postponed their initial public offerings and that foreign companies were more likely to delist after the onset of wars. Investors reacted negatively to the increase in war news coverage. There is evidence of mean-reversion after a threat of war and a negative drift following the start of war. Finally, I highlight the importance of proximity to military conflicts. In general, the evidence indicates that both managers and investors became more risk averse as a consequence of war news.

Type
Article
Information
The Journal of Economic History , Volume 80 , Issue 3 , September 2020 , pp. 629 - 669
Copyright
© The Economic History Association 2020

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Footnotes

I acknowledge the help of my Ph.D. supervisors, Marc Deloof and Jan Annaert, and doctoral committee, Koen Inghelbrecht, Peter Koudijs, Kim Oosterlinck, Christophe Spaenjers, and Stefan Straetmans. I thank Dan Bogart and three anonymous referees for their remarks. I am indebted to Lieven Baele, Henk Berkman, Zhi Da, Steven Davis, Abe De Jong, William Deringer, David Echeverry, Barry Eichengreen (discussant), Robin Greenwood, Benjamin Golez, Pierre-Cyrille Hautcoeur, Sandile Hlatshwayo (discussant), Ralph S.J. Koijen, Thomas Lambert, John Lee, Tiago Mata, Bill McDonald, Hannah Merki, Leentje Moortgat, Piet Sercu, Kristien Smedts, Stijn Van Nieuwerburgh, Clive Walker, seminar participants at the ASSA Annual Meeting (Atlanta, 2019), Economic History Society (Belfast, 2019), and Economic and Social History Society of Ireland (Belfast, 2018), and Erasmus University Rotterdam, Ghent University, KU Leuven, Mendoza College of Business, Monash University, Paris School of Economics, University of Auckland, University of Illinois Urbana–Champaign, and Vrije Universiteit Brussel. I am grateful to Leentje Moortgat for sharing her data. A large part of this article was written while I was a visiting student at the Stanford Graduate School of Business and Mendoza College of Business.

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