The Shareholder Value Effect of System Overloads: An Analysis of Investor Responses to the 2003 Blackout in the US

Authors

  • Yassin Denis Bouzzine Leuphana University Lüneburg, Institute of Management, Accounting and Finance, Universitätsallee 1, 21335 Lüneburg, Germany http://orcid.org/0000-0003-2661-541X
  • Rainer Lueg Leuphana University Lüneburg, Institute of Management, Accounting and Finance, Universitätsallee 1, 21335 Lüneburg, Germany University of Southern Denmark, Department of Business and Economics, Universitetsparken 1, 6000 Kolding, Denmark http://orcid.org/0000-0002-6172-944X

Abstract

This study investigates the stock price reaction of electric energy utility firms to the 2003 blackout in the Northeast of the USA and if the market was able to identify the responsible firm. Therefore, we employ event study methodology and select a sample of US-based electric energy utility firms. Although it took a commission almost eight months to name the firm responsible for the blackout, investors punished FirstEnergy only two trading days after the blackout - and were right, as it later turned out. This study demonstrates this based on the analysis of abnormal stock returns and abnormal trading volumes. Our findings suggest that investors have extensive knowledge of electric energy utility firms' responsibility as they were able to identify the culprit. This, in turn, demonstrates that electric power utility firms should ensure a high-quality grid infrastructure to avoid these negative outcomes.

Keywords: Event study; Blackout; System overload; Market efficiency

JEL Classifications: G1, Q40  

DOI: https://doi.org/10.32479/ijeep.11756

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Published

2021-11-03

How to Cite

Bouzzine, Y. D., & Lueg, R. (2021). The Shareholder Value Effect of System Overloads: An Analysis of Investor Responses to the 2003 Blackout in the US. International Journal of Energy Economics and Policy, 11(6), 538–543. Retrieved from http://econjournals.com/index.php/ijeep/article/view/11756

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