Market reaction following the award of highway concessions: market surprise or positive anticipation?

Abstract This study explores how the stock market reacts to the award of highway concessions using the case of Portugal, a country which awarded 19 highway concessions over the period of 1998 to 2009. We focus on the abnormal returns of both the winning and losing publicly-listed companies that participated in all the tender processes, either individually or in a consortium. The results indicate a positive market reaction, although only for firms that have previously won a highway concession. Based on their experience in winning and operating highway concessions in Portugal, these firms can bid more effectively and present proposals which generate a better value proposition for their shareholders. Accordingly, investors immediately gain from the benefits of the forecast experience and the synergetic gains from operating more than one highway concession. On the opposite, markets react sceptically when the firm starts to operate a highway concession in Portugal. This paper also suggests that markets reward more lengthy contracts positively, as well as if the biding company is not headquartered in the country.