Abstract
We examine the valuation effects to Y2K-related announcements. We find that the announcement-day abnormal return is not significantly different from zero for the whole sample. Firms announcing the attainment of a Y2K-related contract, however, experience a statistically significant abnormal return of 0.76 percent on the day of the announcement. In contrast, firms that announce that they are Y2K-ready experience a statistically significant negative abnormal return of —0.36 percent on the announcement day. For these companies, regression analysis reveals that abnormal returns are higher the more a firm spent on fixing or preventing Y2K-related problems. Furthermore, Y2K-ready stocks have outperformed industry peers following the year 2000 both in terms of operating and stock return performance. The evidence suggests that investors understood the severity of the problem and were able to distinguish between companies for which the issue was important and those for which it was not.