When Firms Publicize Energy Management Projects Their Stock Prices Go Up

Abstract

The potential for incr eased profits via cos t- reduc ing Ene rgy Man age-
m ent Projects (EMPs) exists in nearly all firms. Howe ver , wh en allocat-
ing capital, pr iority is often given to reoe nue-enhancing projects, such as
starting new product lines or joint v enture s.
Fre quen tly, these pro jects are perceived to be superior to EMPs,
even though the y ma y yield the same increased profit and pre sent value.
A justificati on is that revenue-enhancin g projects are more likel y to attract
publi city and investor att ention. Investor speculation and reaction to an-
n oun cem ent s can inc reas e the f irm's stock price. Most EMPs d o not gen-
era te as mu ch publi city as joint v enture s or new product lines.
If "p ublicity-gaining " potential is a decision factor durin g project
selection, then a new p roduct line or joint-venture would usually be
selected over an EMP. But is this a fair compar ison? There ha s not been
any research to det ermine if an EMP announcemen t increases a f irm 's
stock pri ce. In theory, it sho uld- because most EMPs increase profits
(via cost reduction inst ead of increa sed revenues). From a cash flow per-
spe ctive, an EMP is equi valent to an y other profit- enhancing project.