A traditional event study methodology is not

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A traditional event study methodology is not applicable to this specific research design because the research periods require a long time horizon instead of the narrow window associated with an event study. In addition, a nonparametric approach is more efficient given the limitation of defining all six periods as strict twenty-month periods given some eras might be somewhat longer or shorter than the twenty-months. The Kruskal-Wallis test is sensitive to differences among means in the k populations and is extremely useful when the alternative hypothesis is that the k populations do not have identical means. The null hypothesis is that the k company stock returns in the different periods come from an identical distribution function. For a complete description of the Kruskal-Wallis test, see Conover (1980). The specific equations used in the calculations are as follows: (1) N = i n i with i = 1 to k (2) R i = j R(X ij ) with j = 1 to n i (3) R j = i O ij R i with i = 1 to c (4) S 2 = [1/(N-1)] [ i t i R i 2 – N(N+1) 2 /4] with i = 1 to c (5) T = (1/S 2 ) [ i (R i 2 /n i ) – N(N+1) 2 /4] with i =1 to k (6) (R i /n i ) – (R j /n j ) > t 1-a/2 [S 2 (N-1-T)/(N-k)] 1/2 [(1/n i ) + (1/n j )] 1/2 where R is the variable rank and N is the total number of observations. The first three equations find average ranks. Equation (4) calculates the sample variance, while equation (5) represents the test statistic. If, and only if, the decision is to reject the null hypothesis, equation (6) determines multiple comparisons of stock market returns across the various periods. RESULTS Table 1 offers summary statistics for the five computer network and information technology services companies in the research cohort. Yahoo is the most volatile company in the research sample with the largest mean, median standard deviation, sample variance, and maximum monthly return. Nortel is the sample representative with the minimum monthly return of greatest magnitude. Monthly returns for the companies range from a minimum of -0.5478 for Nortel to a maximum of 1.3365 (or 13% in one month) for Yahoo. Ericsson is the median firm for five of the seven categorical descriptive statistics. The most notable observations are the very large 120-month return of 3,416% for Yahoo and the respectable 120-month return of 275% for Cisco. Three of the five companies in the research cohort earn 120-month returns that are negative or relatively small, with Nortel Networks earning -66%, 3Com earning -56%, and Ericson earning a modest 23%. The negative returns earned by Nortel and 3Com help explain the reason for the bankruptcy and sell off of Nortel in 2009 and the 2010 acquisition of 3Com by Hewlett-Packard.
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Page 94 Academy of Accounting and Financial Studies Journal, Volume 15, Number 4, 2011 Table 1 Summary Statistics for Computer network and Information Technology Services Firms Average Monthly Returns Firm Mean Median Standard Deviation Sample Variance Minimum Maximum 120-month Return COMS 0.0112 -0.0070 0.1944 0.0378 -0.5069 0.9300 -56% CSCO 0.0198 0.0252 0.1312 0.0172 -0.3673 0.3892 275% ERIC 0.0162 0.0015 0.2025 0.0410 -0.5436 1.0273 23% NT 0.0151 0.0077 0.2320 0.0538 -0.5478 1.2778 -66% YHOO 0.0538 0.2176 0.2384 0.0568 -0.3623 1.3365 3,416% Notes: The sample period is the 120-months between August 1996 and August 2006. Total return for ten-year period is 102.6% for the Dow Jones Industrial Average and 91.3% for the NASDAQ Composite Index.
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