1 s2.0 S2096232021000822 Main

Journal of Management Science and Engineering 7 (2022) 387e404
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Journal of Management Science and Engineering

journal homepage: www.keaipublishing.com/en/journals/
journal-of-management-science-and-engineering/
Effects of smart agricultural production investment

announcements on shareholder value: Evidence from China
Weihua Liu a, *, Shangsong Long a, *, Siyu Wang a, *, Ou Tang b, Jiahe Hou a,
Jiahui Zhang a
a
College of Management and Economics, Tianjin University, No.92, Weijin Road, Nankai District, Tianjin, 300072, China
b
Department of Management and Engineering, Linko€ping University, Linko€ping, SE-581 83, Sweden
a r t i c l e i n f o a b s t r a c t
Article history: The advent of the era of the smart economy has made agricultural production more
Received 18 December 2020 intelligent. An increasing number of companies have launched a series of investment ac-
Received in revised form 28 July 2021 tivities aimed at smart agricultural production (SAP). However, whether smart agricultural
Accepted 13 September 2021
production investment (SAPI) impacts the stock market has yet to be confirmed. Therefore,
Available online 31 December 2021
based on the sample data of 118 listed companies in China from 2010 to 2019, this study
empirically examines the impact of SAPI announcements on shareholder value, as indi-
Keywords:
cated by abnormal returns of stocks. Further, we tested the moderating effect of certain
Smart agriculture production
Smart agricultural production investment
characteristic factors on abnormal stock returns. The research results illustrate a significant
Stock market reaction positive connection between SAPI announcements and shareholder value. Moreover,
Influence factors considering the announcement content and company factors, this study investigates the
Empirical research impacts of different investment targets and industries on the market reaction to SAPI
announcements. We find that non-agricultural companies have a more positive market
reaction to SAPI than agricultural companies; the higher the liability-asset ratio, the more
positive will be the stock market reaction to SAPI.
© 2021 China Science Publishing & Media Ltd. Publishing Services by Elsevier B.V. on
behalf of KeAi Communications Co. Ltd. This is an open access article under the
CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
1. Introduction
Agricultural production is the primary condition for all productions as a key component of promoting social development.
However, due to the influence of the industrial revolution, agricultural production has begun to receive less attention. With
the advent of the era of the smart economy, the development and application of smart technology have helped agricultural
production regain public attention. In recent years, China has made remarkable achievements in sustainable agricultural
development as a large agricultural country. Developing smart agricultural production (SAP) with new technologies has
become a new engine for the sustainable development of China's agricultural economy (China Central Television News). SAP
has also become an important driving force for social development, economic growth, and environmental protection (Gong,
2020; Liu et al., 2021). SAP refers to the application of various information and digital technologies in any link to the
traditional agricultural production to improve agricultural sustainability and productivity and make traditional agricultural
production “smarter” (Wolfert et al., 2017; Blok and Gremmen, 2018).
* Corresponding author.
E-mail addresses: lwhliu@tju.edu.cn (W. Liu), longshangsong@tju.edu.cn (S. Long), willsiyu@163.com (S. Wang).
https://doi.org/10.1016/j.jmse.2021.12.007
2096-2320/© 2021 China Science Publishing & Media Ltd. Publishing Services by Elsevier B.V. on behalf of KeAi Communications Co. Ltd. This is an open
access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
W. Liu, S. Long, S. Wang et al. Journal of Management Science and Engineering 7 (2022) 387e404
With the intelligent upgrading of traditional agricultural production, companies are bound to invest in talent, technology,
facilities, and equipment. Investment is a strategic activity to promote the technological upgrading, capital appreciation, and
sustainable performance of companies, which should have a positive impact on company operations (Buckley, 2018; Liu et al.,
2021). With the rapid development of the smart agriculture market, to realize the sustainable growth of companies, more
companies are seeking opportunities to invest in SAP as a sustainable strategy. However, studies have yielded contradictory
results regarding whether investment activities have a positive or negative impact on shareholder value, as the industrial
environment matters (Ran et al., 2007; McNamara et al., 2008). Furthermore, there is no confirmed outcome of whether
smart agricultural production investment (SAPI) leads to an abnormal reaction in the stock market.
Although researchers have extensively studied investment activities, including the market reaction to investment an-
nouncements (Ushijima, 2010), the company performance of investment activities, and the factors affecting market reaction
to the investment announcement (Harford and Uysal, 2014), there are still research gaps. First, of recent research on market
reactions to investment, most studies (Gorton et al., 2009; Uysal, 2011; Obedkova et al., 2020) do not distinguish by industry.
However, the differences in the growth rate and market vitality of the industry (McNamara et al., 2008) will have a huge
impact on investment risks, investment returns, and other aspects. Second, according to previous research results, many
scholars find that investment announcements will allow a company to obtain positive abnormal returns in the short term
(Wijayana and Achjari, 2019; Frija et al., 2020). Nevertheless, some study results show that the release of investment an-
nouncements will not bring significantly positive abnormal returns for companies or, in some cases, will even lead to negative
abnormal returns (Ahn et al., 2010). Therefore, whether and how SAPI brings value to shareholders is undetermined. Third,
due to the current incentive policies in China, many scientific and technological agricultural innovations are taking root, and
SAP has entered a golden period of rapid development (Wang et al., 2013). However, current literature on SAP mostly focuses
on descriptive analysis, such as the application of big data, blockchain, and other technologies to SAP (Shepherd et al., 2018).
There is a lack of research on SAPI and stock market changes due to SAPI announcements.
Based on the Chinese stock market, this study examines the market reaction to SAPI announcements and explores the
following three issues.
RQ (1): What impact can SAPI have on the stock market?
RQ (2): How will factors at the investment company level, such as (a) the industry of the investment company and (b) the
company's liability-asset ratio, affect the reaction of the stock market caused by SAPI announcements?
RQ (3): How will the content level factors of SAPI announcements, such as (c) the investment options, (d) the investment
directions, and (e) the investment targets of the company, affect the reaction of the stock market?
The main research method in this study is the event study, which adopts the research ideas of Jacobs and Singhal (2014)
and Hendricks et al. (2014). This study selected 118 SAPI announcements of Chinese listed companies from 2010 to 2019 as
samples to test the impact of SAPI announcements on the stock market (a common measure of shareholder value).
Concurrently, we examine how characteristic factors affect stock market reactions. Specifically, the study includes factors at
the investment company level, such as the industry of the investment company, the liability-asset ratio of the company, and
other factors at the investment-announcement content level, such as investment options, directions, and targets. By studying
the influences of these factors on market reactions, we further reveal the fluctuations in the market reaction under different
circumstances.
Our study provides some interesting findings. First, we note a significant positive relationship between SAPI announce-
ments and shareholder value. The results show that SAPI announcements can improve shareholder value in the short term,
which answers RQ (1). Second, regarding RQ (2), from the perspective of investment companies, non-agricultural companies
have a more positive market reaction to SAPI than agricultural companies, and the higher the liability-asset ratio, the more
positive the stock market reaction to SAPI. Finally, regarding RQ (3), the content of the SAPI announcements reveals that the
stock market reaction to inward investment is higher than to outward investment. The study also suggests investment in SAP
socialized services, which often brings higher abnormal returns, instead of investing in smart technology and equipment or
directly in agricultural production chains.
This study makes the following three contributions. First, contrary to most previous studies on smart agriculture that
adopt descriptive analysis (Issad et al., 2019), this study initiates the event study method to analyze the impact of SAPI an-
nouncements on shareholder value. Through quantitative analysis of the changes in the stock market of listed companies
during the window period of SAPI announcements, we introduce a new research method for studying and evaluating the
factors influencing investment announcements in specific industries. Second, from the perspective of announcement content
and company factors, this study considers the impacts of different investment targets and industries on the market reaction to
SAPI announcements, which provides a research paradigm for future studies on the impact of investment on the stock market.
Thus, the study further enriches and expands the research on smart agriculture and provides direction for the sustainable
practice of agriculture. Finally, this study also provides theoretical guidance for relevant companies to invest in SAP. This study
focuses on the correlation between the characteristic factors of agricultural production and abnormal returns. This indicates
that the market reaction to SAP socialized service investment is positive. This finding is consistent with the goal of achieving
sustainable agriculture, indicating that companies should focus on socialized services when investing in SAP.
The remainder of this paper is organized as follows. Section 2 presents a review of the literature, and Section 3 describes
the research hypotheses and framework. Further, Section 4 introduces sample selection and description, and Section 5
presents the empirical analysis and the results. Finally, Section 6 concludes the results, lists the theoretical and manage-
ment implications, and provides future research directions.
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2. Literature review
The references in this study mainly include the following two aspects: research on smart agriculture and agricultural
investment and the abnormal returns from investment announcements and influence factors of the stock market.
2.1. Smart agriculture and agricultural production investment
Driven by Industry 4.0, China's agricultural operating mode will shift from experience-based management to data-based
management; the development of agricultural production will gradually realize intellectualization from the primary stage to
the advanced production stage (Shen et al., 2019). In this case, research on smart agriculture is relatively mature. First, some
scholars started with the development mode of smart agriculture and conducted interesting research on agricultural pre-
cision production (Kendall et al., 2017), agricultural e-commerce (Wang and Yue, 2017), agricultural leisure tourism (Ciolac
et al., 2020), and agricultural supply chain finance (Wang et al., 2013). Second, some studies have also focused on the
application of big data, blockchain, and other technologies in smart agriculture (Shepherd et al., 2018) and the practical
application of intelligent agriculture optimization models based on the Internet of Things and similar technologies (Abdel-
Basset et al., 2020). In general, with the continuous development of smart agriculture, more studies have been conducted
in this field.
Agricultural production investment is an important part of agricultural management research. Many scholars have studied
the content, environment, and effects of agricultural production investment. First, research on the content of agricultural
production investment shows that investment in human capital, infrastructure, and other internal factors will have a more
positive impact on the development of companies. For example, Obedkova et al. (2020) found that human capital investment
determined the development level of agriculture and stressed the necessity of modernizing personnel training in agricultural
companies. Some studies also found that investment in agricultural infrastructure has a greater impact on the growth of
companies than investment in agricultural productivity (Frija et al., 2020). Second, the studies highlight the importance of the
investment environment, including government policies, weather shocks (Newman and Tarp, 2019), and other external
factors. For example, Deng et al. (2019) showed that government policies have an important impact on companies’ invest-
ment decisions in the R&D of agricultural technology. Third, this investigation focuses on the investment effect. Some studies
indicate a positive impact of agricultural production investment on the social economy (Awunyo-Vitor and Sackey, 2018).
Although the above research involves the two fields of smart agriculture and agricultural production investment, no study
has yet been conducted on SAPI. How does the stock market react to SAPI announcements? What factors affect abnormal
returns from SAPI announcements? These questions still need to be systematically investigated.
2.2. Abnormal returns and influencing factors of SAPI announcements
Investment is often considered an effective way to realize the rapid expansion of companies, which can have a positive
impact on company operations. There have been extensive discussions of ways to create wealth effects for companies through
investment (Niu et al., 2018; Buckley, 2018; Liu et al., 2018). According to some research results, releasing an investment
announcement often allows a company to obtain positive abnormal returns in the short term (Wijayana and Achjari, 2019;
Frija et al., 2020; Liu et al., 2021). Conversely, other studies have indicated that the release of an investment announcement
will not bring a significant positive abnormal return for the company or might even result in a negative abnormal return (Ahn
et al., 2010). However, the existing research on investment announcements mainly concerns manufacturing industries, such
as automobiles (Kim and Han, 2019) and electronic industries (Wijayana and Achjari, 2019), while relatively little attention
has been paid to the market reaction to SAPI.
Previous research has also investigated the factors affecting the abnormal returns of an investment announcement. For
example, from the perspective of the characteristics of investment companies, studies have shown that company size is
negatively correlated with an abnormal return on investment. The market will react more strongly when companies have
smaller scales and lower competitive positions (Wijayana and Achjari, 2019). According to Gorton et al. (2009), for medium-
sized investment companies, the larger the target company is, the smaller will be the abnormal return. There are also positive
correlations between a company's financial situation and the stock market situation and an abnormal return on investment.
Companies with high liability-asset ratios tend to trigger more significant market reactions (Roztocki and Weistroffer, 2015).
Regarding the characteristics of investment behavior, DeLong (2001) showed that diversified investment would bring value
loss to companies, and investment in an industry more easily creates value. However, Leeth and Borg (2000) believe that there
is no significant correlation between investment type and abnormal returns.
Reviewing previous studies of abnormal returns and the influencing factors of investment, we find that there is still a lack
of research on the impact of SAPI. It is urgent to provide the necessary theoretical support for SAPI using empirical research.
2.3. Summary of the literature review
The literature review shows that scholars have made achievements in research on company investment activities, but
research on SAPI is still limited. Further, the study of influencing factors on the market reaction is relatively rich, but studies
incorporating industry analyses are still limited. Therefore, this study focuses on SAPI announcements and explores the
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impact of the characteristic factors of the announcement on abnormal returns to provide an in-depth exploration of smart
agriculture development. Here, we outlined the four studies most related to this study (Table 1) and compared their
differences.
3. Research hypothesis and framework
In this section, we propose the hypotheses and present the corresponding hypothesis framework.
3.1. Research hypotheses
3.1.1. SAPI announcements and market reaction

Investment is economic behavior in which an economic entity puts sufficient money or money equivalent in kind into a
certain field within a certain period to obtain income or capital appreciation in the foreseeable future. For listed companies, an
investment decision will inevitably have a significant impact on the cash flow statement in a certain period and subsequently
affect the stock market price. First, when companies announce their investment activities, the stock market will react, as
shown in many studies (Ushijima, 2010; Uysal, 2011; Wijayana and Achjari, 2019). Some scholars claim that agricultural
production investment decisions also have positive impacts on companies (Awunyo-Vitor and Sackey, 2018). Obedkova et al.
(2020) also found a positive impact on a country's overall GDP (Frija et al., 2020). Second, with the encouragement of China's
current policies, many agricultural scientific and technological innovation achievements are taking root, and smart agricul-
ture has stepped into a golden period of rapid development. This trend is reflected in the reaction of China's stock market.
According to the statistics of the Flush Data Center (Securities Daily), the share prices of 13 components in the smart agri-
culture sector have outperformed the market since 2019, accounting for nearly 60%. Additionally, the cumulative growth of
several stocks in 2019 outperformed the market. In this study, we chose SAPI activities as the research sample and therefore
posited the following:
Hypothesis 1. The SAPI announcement produces a positive market reaction.
3.1.2. Company characteristics and market reaction

Based on the above discussion, we assume that the stock market's reaction to the SAPI announcement is positive. However,
should the market reaction vary under different conditions? What factors significantly affect market reactions? To further
investigate these questions, this study considers the impacts of company characteristics on the market reaction, analyzes
whether the liability-asset ratio and the industry of the investment company will affect the market reaction, and explains the
findings accordingly.
(1) The industry of the investment companies
In this study, SAPI activities were selected as the research object. The cross-industry investment behavior of non-
agricultural companies was also considered for comparison purposes. Studies have shown that the characteristics of
different industry levels can affect abnormal returns of investment activities (Ran et al., 2007). Therefore, we divide in-
vestment companies into agricultural and non-agricultural categories. In recent years, investment companies have
increasingly invested across industries to expand their business scope and increase opportunities for returns (Berger and
Ofek, 1995). According to Guo and Huang (2017), the cross-industry investment behavior of many companies only white-
washes financial statements and attracts investors’ attention. This cannot create real value for companies but intensifies
vicious competition among them. Further, Haddad (2019) shows that in developing countries, companies tend to enter
promising industries one after another, which leads to a decline in their core business. Owing to the “learning risk” raised by
cross-industry investment behavior (Simon, 1955; Kahneman, 2003), we consider that cross-industry investment behavior
Table 1
Comparative summary of the literature.
Blok and Gremmen Buckley (2018) Deng et al. (2019) Wijayana and Achjari (2019) This study
(2018)
Research areas Smart agriculture Investment Investment in Impact factors of an investment SAPI
announcement agriculture announcement
Research methods Descriptive analysis Secondary data Descriptive analysis Secondary data Secondary
data
Smart-agriculture-related ✓ ✓ ✓
Whether specific industries are ✓ ✓ ✓
studied
Analysis of investment factors ✓ ✓ ✓
Analysis of corporate factors ✓ ✓ ✓ ✓ ✓
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will have a negative impact on the stock market. Additionally, from the perspective of the influencing factors of company
characteristics, compared with non-agricultural companies, agricultural companies have accumulated richer practical
experience in the construction and operation of SAP. Thus, they have greater advantages in responding to national agricultural
policies. Therefore, we propose Hypothesis 2:
Hypothesis 2. Compared with non-agricultural companies, the market reaction of agricultural companies to SAPI an-
nouncements is greater.
(2) Liability-asset ratio of the company
The trade-off theory (Robichek and Myer, 1966) and pecking order theory (Myers and Majluf, 1984) are two mainstream
theories related to modern capital structure theory. Both posit that the liability-asset ratio and leverage ratio are important
factors affecting investment decision-making, which can reflect companies' ability to use external resources and the size of
business risks to a certain extent. Therefore, this study chooses the company's liability-asset ratio as the research object and
assesses its impact on the response to the SAPI announcement. Some studies have shown that the return on equity and the
liability-asset ratio of a company have an inverted U-shaped relationship; the appropriate level of the liability-asset ratio of a
general company is 40%e60% (Davydov, 2016). If the company's liability-asset ratio is extremely high, there will be a high risk
of insolvency; if the company's liability-asset ratio is considerably low, it means that the company is too conservative, which is
harmful to shareholders and investors (Agrawal et al., 2006). Further, some scholars have researched investment behaviors in
different industries and concluded that companies with high liability-asset ratios are more likely to receive a significant
market reaction (DeLong, 2001; Wijayana and Achjari, 2019). For example, Abor (2005) studied the relationship between the
capital structure and performance level (return on equity) of listed companies on the Ghana Stock Exchange (GSE). The
empirical results show a significant positive correlation between the short-term liability-asset ratio and return on equity.
Therefore, we believe that companies with higher liability-asset ratios will have a more positive role in promoting stock
market reactions. Thus, we propose Hypothesis 3:
Hypothesis 3. Investment companies with higher liability-asset ratios are more likely to have a more significant market
reaction.
3.1.3. Contents of SAPI announcement and market reaction

To further explore the influencing factors of the market reaction to listed companies’ SAPI announcements, we also study
the impacts of investment options, investment directions, and corporate investment targets on the reactions to SAPI
announcements.
(3) Investment options (sole proprietorship or joint ventures)
Sole proprietorship and joint ventures are two common investment options for companies. Modern companies pay
increasing attention to the effectiveness, flexibility, and cost reduction of resources. Therefore, joint ventures can make the
participating companies achieve win-win results in the form of complementary advantages according to the heterogeneity of
their respective resources and the principle of mutual benefit (Liu, 2019). However, sole proprietorship requires more careful
operations, imposes greater costs, and needs higher operating capital (Ayca, 2012), which, to some extent, limits company
operations. Additionally, compared with traditional agricultural production investments, SAPs often require more flexible
access to various operating resources to achieve a rapid transformation of the new industrial model (Issad et al., 2019).
Therefore, we believe that investment options, as an adjustment factor, can have an impact on the stock market. Therefore, we
propose Hypothesis 4:
Hypothesis 4. From the perspective of investment options, the market reaction of a joint venture is higher than that of a sole
proprietorship.
(4) Investment directions (inward versus outward investment)
According to the different investment directions of companies, we divide the SAPI announcements into two categories:
inward investment and outward investment. Inward investment refers to a company's investment in various current, fixed,
intangible, and other assets of the company. Conversely, outward investment is relative to inward investment, in which
capital investment activities are directed toward units other than the company (Chang, 2019). Research shows a significant
difference between inward and outward investments (Hejazi and Pauly, 2003; Goldbach et al., 2019). If a company makes
frequent outward investments, it indicates that the company's normal business activities do not incur positive benefits
(Barbopoulos et al., 2014), and inward investment often means that the company faces new development opportunities.
Studies have shown that inward investment can significantly reduce investment risk compared to outbound investments (Li
et al., 2017). From the perspective of the investment behavior of SAPs, inward investment often includes the introduction of
smart technology, equipment, and talent by companies and the combination of smart technology and traditional agricultural
391
production (Frija et al., 2020). Compared with outward investment, inward investment can attract more attention and
recognition from investors.
Therefore, we propose Hypothesis 5:
Hypothesis 5. Compared with outward investment, the market reaction to inward investment is more significant.
(5) Investment targets
As SAP is completely rooted in community activities in specific areas, it represents the impacts of community knowledge
resources, means of operation, and methods of economic activity to a certain extent (Price and Evans, 2009). Similarly, when
investing in SAP, different corporate investment targets will also bring strategic changes to stock market reactions and
corporate development.
By carefully reading the contents of each announcement in the sample, we clarified the company investment targets
contained in each announcement. We will introduce the investment targets of SAP contained in the three respective samples
below and further illustrate them with examples.
1) SAP socialized services: These refer to the comprehensive services provided by specialized company organizations and
social groups for agricultural production, including the whole process before, during, and after production (Shen et al.,
2018). Currently, China vigorously advocates the construction of an agricultural production-socialized service system.
For example, “NOPOSION (Stock Code: 002215) announced that it invested in the establishment of RUIDEFENG Agricul-
tural Service Co., Ltd. to establish a regional leading agricultural production service platform and promote the estab-
lishment of an agricultural modernization service system on May 7, 2016.”
2) Agricultural production chain optimization: The agricultural production chain is a network that integrates a production
system with a value-added function, which takes logistics as the link and agricultural products as the nodes, and unites the
whole process before, during, and after agricultural production (Zhao et al., 2011). For example, “KINGENTA (Stock Code:
002470) issued a notice on July 27, 2018, claiming that it will further open the production link in the agricultural industry
chain through the establishment of a joint venture to realize the whole production chain service of agricultural materials
descending and agricultural products ascending.”
3) Smart technology and equipment: Currently, agriculture is gradually changing from a labor-intensive production model to
a technology-intensive one centered on information platforms and intelligent equipment. For example, “FORBON (Stock
Code: 300387) issued an announcement on August 21, 2018, indicating that it will realize precise planting and visual
management of agricultural production by establishing an Intelligent Agricultural Research Institute, using advanced
intelligent sensors, communication networks, and other infrastructure, combining Internet of Things, big data, and other
technologies to ensure high yield, quality, and efficiency of agriculture.”
Most studies show that the development of smart agriculture is significantly influenced by policy and environmental
factors (Jelsma et al., 2017). Under the current supply-side structural reforms in China, an “Internet þ agriculture” socialized
service system is being actively constructed. Through the “Internet þ” model, many rural areas have improved the levels of
automation in agricultural production, reduced labor intensity, and enhanced the competitiveness of agricultural products
(Wolfert et al., 2017). Under the “Agricultural Internet þ” service system, e-commerce platforms such as JD.com and Pin-
duoduo have increasingly cooperated with farmers to establish a traceable agricultural product quality and safety supervision
system (Bosona and Gebresenbet, 2013). Thus, it has become an important circulation channel and consumption model for
agricultural production. Studies have shown that the “Internet þ agriculture” socialized service system will become an
important model and development trend for China's agricultural production (Shen et al., 2018). Therefore, we believe that
investing in SAP socialized services can attract more attention from investors. Thus, we propose Hypothesis 6:
Hypothesis 6. Compared with investment in agricultural production chain optimization and smart technology and equip-
ment, investment in SAP socialized services can generate a more positive market reaction.
3.2. Hypothesis summary and research framework
In summary, we selected five characteristic factors related to the SAPI. H1 represents the direct impact of SAPI an-
nouncements on shareholder value, H2 and H3 represent the moderating effect of company characteristics, and H4, H5, and
H6 represent the adjustment effects of the content of SAPI announcements. The overall research framework is shown in Fig. 1.
In the next section, we conduct hypothesis testing for the five characteristic factors proposed in this section. Additionally,
we select three factorsdcompany size, relative control power, and related party transactionsdas the control variables for the
analysis and verification in the multiple regression model.
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Fig. 1. Research framework.

Note: SAPI announcement refers to announcements containing SAP investment behavior, and shareholder value means the stock market reaction in this study.
4. Sample selection and description
4.1. Collecting and screening samples
The sample announcement data source for this study is the Wind database (Wind). As one of the most widely used da-
tabases in China's financial industry, it contains official announcements issued by all listed companies (Poon and Chan, 2008;
Xu, 2012). In this study, all our samples are from the official announcements of listed companies and not from news reports in
newspapers (an official announcement is the most authoritative source of information). We searched for all A-share listed
company announcements from January 1, 2010, to December 31, 2019, to obtain our sample. The A-share market is the most
mature stock market in Mainland China and provides sufficient samples and representativeness for our research. Further,
considering the relatively small number of B-share and H-share companies, we only select the A-share listed companies as the
research object. There are two reasons for choosing this period. The first is related to the standardization of information
disclosure by Chinese listed companies. The investment transactions of stock market companies before 2010 are imperfect in
several authoritative databases in China, and the information in other channels is scattered. Therefore, the current selection
guarantees the validity of the information. Second, the concept of “smart agriculture” was proposed in 2010. Simultaneously,
the China Agricultural Work Conference first raised the issues of agricultural production innovation and achieved break-
throughs in key areas and core technologies in 2010, leading China to move gradually toward SAP.
We searched the official announcements of companies from 2010 to 2019 in Wind, referring to the studies of Jacobs and
Singhal (2014) and Wijayana and Achjari (2019), and selected samples according to the following criteria.
1) The sample comes from the official announcements of A-share listed companies. We have collected all announcements
with “SAPI” in the title. Further, to ensure that relevant samples were not missed, we also used keywords such as “smart
agricultural production,” “agricultural investment,” “agricultural production,” “agricultural production investment,” and
“smart agriculture” to complete the searches. In this step, 764 samples were obtained.
2) Announcements that were not first published were excluded from the sample, such as the introduction of the progress of
the previous SAPI. Additionally, if the company also issued other major strategic decisions on the day of the announce-
ment, we also excluded such announcements to avoid the superimposed impact of multiple events. The number of
samples at this point remained at 513.
3) The content of the investment announcement should be related to the SAP themedat least two conditions must be
fulfilled. First, there are investment companies, invested companies, or projects. Second, investment content is related to
the SAP. In the sample selection process, we ensured that the content of the announcement was strictly related to the SAP.
After this screening step, 237 samples were retained.
4) To eliminate the bias due to multiple SAPI events, we remove the samples with additional SAPI announcements in the time
interval of 220 trading days before and 20 trading days after the investment announcement date. Similar sample selection
principles have also been reported in other studies (Hendricks et al., 2014). The purpose was to avoid cross-influences
between the announcements. After this step, the sample size was 131.
5) The company issuing the announcement must have information about stock returns in the RESSET database, which is the
most widely used database by Chinese scholars to study listed companies in China and contains comprehensive stock data
(Wang and Qian, 2011). According to the above screening rules, in the process of collecting stock data for analysis, we
excluded some samples that lacked stock data. Finally, our sample ended with 118 SAPI announcements. The specific
screening process is shown in Fig. 2.
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4.2. Sample description for the measurement of the main variables
This section introduces the sample description for the measurement of the main variables.
The company characteristics corresponding to RQ (2) are represented by the following two factors:
(1) Industry of the investment company (I): Considering that different industries may respond differently to the SAPI, we
introduce this indicator variable. Agricultural companies are represented by 1, and non-agricultural companies are
represented by 0.
(2) Liability-asset ratio (LAR): This is a numeric variable. We use the ratio of a company's total liabilities to total assets in
the fiscal year before the announcement to represent its pre-announcement LAR. This indicator helps indicate the
operating status and investment risk of the company (Amadu et al., 2020).
Furthermore, there are factors related to the content of investment announcements corresponding to RQ (3), as detailed
below.
(3) Investment option (IO): Sole proprietorship and joint venture are two common investment options for companies.
Here, an indicator variable 1 represents a joint venture and 0 a sole proprietorship.
(4) Investment direction (ID): Inward investment refers to a company investing funds into the company, and outward
investment refers to investment activities in units outside the company. Here, an indicator variable 1 is assigned for
inward investment and 0 for outward investment (Julien et al., 2019).
(5) Investment target (IT): Through the intensive reading of the sample announcements, we divide the investment targets
of companies into three categories: investments in SAP socialized services, investments in agricultural production
chain optimization, and investments in smart technology and equipment.
Finally, the control variables are considered.

The first is the size of the control power (CP) of investment companies. After comparing the holding shares of the investor
in the target project, we use an indicator variable to represent the relative size of the CP. When the company issuing the
investment announcement has a larger control right, the variable is assigned a value of 1; otherwise, the value is 0 (Liu et al.,
2017).
The second is company size (S), which is a numeric variable. We use the natural logarithm of the company's total assets in
the fiscal year before the announcement to define company size. This variable is used to control for the effect of company size
on abnormal returns.
The third is related party transactions (RPTs). Chinese listed companies must disclose whether they are pursuing a related
party transaction when they have significant trading activities because this may affect the interests of shareholders. If the
investment constitutes a related party transaction, it is represented by 1, and otherwise 0.
Fig. 3 summarizes the data sources and descriptions related to SAPI announcements.
Based on the hypotheses proposed in Section 3.1 and the previous description, we further summarize the SAPI
announcement sample and its distribution of different characteristics, as shown in Table 2.
Fig. 2. Sample selection process of SAPI announcements.
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5. Empirical analysis and results
The sample data source in this study is the RESSET database, which is the most widely used database in China for studies in
the financial industry.
5.1. Research methodology
This study adopts the event study method (Hendricks et al., 2014) to estimate the market reaction to SAPI announcements.
The event study method is used to quantitatively estimate the stock market's reaction to an event by calculating the abnormal
return caused by a specific event. It is the most common empirical method to study the micro effect of investment and has
been widely used by many scholars (Liu et al., 2020).
The estimation of the market reaction is based on the size of the abnormal returns related to the event. Abnormal return
refers to the difference between the actual and expected returns of the stock during the period when the event occurs. In
terms of the selection of the event window period, we set the day when the company issues the SAPI announcement on day 0.
If the day when the announcement is issued is a no-trading day or stock trading is stopped for other reasons, then the first
trading day after the announcement is used as day 0. The trading day before the announcement is day 1, the trading day
after day 0 is day 1, and so on (Ahn et al., 2010; Hendricks et al., 2014). Additionally, many studies investigate abnormal
returns two days before the trading day (Jacobs and Singhal, 2014; Xia et al., 2016; Liu et al., 2020) to consider the early
reaction of the stock market caused by possible leaks in the news. Therefore, this study sets the event window period as (2,
2).
To calculate abnormal returns, we choose the market model, which is more common in event studies. The market model is
a single index model that reflects the linear relationship between the return of a specific stock and the market return at a
given time. The market model is one of the most classical models in the event study method, and it is widely used to estimate
abnormal returns (Agrawal et al., 2006; Jacobs and Singhal, 2014; Wijayana and Achjari, 2019). The market model is as
follows:
Rit ¼ ai þ bi Rmt þ εit (1)
In the above formula, the return of stock i on day t, Rit , is used as the response variable, and the daily return of the market
index Rmt is used as the explanatory variable. The regression coefficient of the daily return of the market index is bi , and the
Fig. 3. Sample source description.
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Table 2
Sample distribution of SAPI announcements (n ¼ 118).
A: By announcement time
Announcement time Number of announcements Proportion of the total

2010 1 0.85%
2011 5 4.24%
2012 6 5.08%
2013 9 7.63%
2014 11 9.32%
2015 19 16.10%
2016 18 15.25%
2017 12 10.17%
2018 20 16.95%
2019 17 14.41%
B: By industry of the investment company
Industry of the investment company Number of announcements Proportion of total
Agricultural 66 55.93%
Other industries 52 44.07%
C: By investment options
Investment options Number of announcements Proportion of total
Joint venture 67 56.78%
Sole proprietorship 51 43.22%
D: By investment directions
Directions of investment Number of announcements Proportion of total
Outward investment 72 61.02%
Inward investment 46 38.98%
E: By investment targets
Investment targets Number of announcements Proportion of total
SAP socialized services 39 33.05%
Agricultural production chain optimization 37 31.36%
Smart technology and equipment 42 35.59%
intercept of stock i is ai . The random error term is εit . We used 200 pieces of trading data from day 210 to day 11 to measure
the expected returns of each stock. To avoid the impact of the announcement, we use returns two weeks prior to the esti-
mation period. The same estimation period has been selected in the literature (Jacobs and ∧ Signhal, 2014; Hendricks et al.,
∧
2014). Using the data of the 200 days, least squares estimation was conducted to obtain bi and ai .
During the event window period, the expected return of stock i on day t is as follows:
∧ ∧ ∧
Rit ¼ ai þ bi Rmt (2)
The abnormal return of stock i on day t is the following:
∧
Ait ¼ Rit Rit (3)
If the number of samples is set to N, the mean abnormal return of the samples on day t is as follows:
XN
At ¼ i¼1
ðAit = NÞ (4)
Subsequently, the cumulative mean abnormal return in the period ½t1 ; t2 is the following:
Xt2
CAR½t1 ; t2 ¼ t¼t1
At (5)
Further, to check whether the outliers have an impact on the results, we also apply another binomial sign test to check
whether the probability of a negative abnormal return is significantly greater than 50% (Jacobs and Signhal, 2014).
In the following section, we first classify and describe abnormal returns obtained from statistics. The purpose of the t-test
is to verify the significance of abnormal returns. Subsequently, we use a multiple regression to test the impacts of the
influencing factors on the abnormal returns to verify our hypotheses.
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5.2. Direct impact of SAPI announcements (RQ1)
5.2.1. Market reaction to SAPI announcements

The abnormal returns of 118 SAPI announcements in China during the (2, 2) window period are listed in Table 3.
As shown in Table 3, the mean (median) abnormal return on day 0 of the announcement was 0.737% (0.557%), which was
significant at the 1% level (1%). Further, the positive rate of the abnormal return was 59.83%, which is significantly higher than
50% at the 5% level. This outcome shows that the stock market had a significantly positive reaction on the day of the
announcement. On day 1, the mean abnormal return is a slightly negative value, and the median value of the abnormal return
is 0.314%, which is significantly negative at the 5% level. Although the median abnormal returns on day 1 were significant,
the sample mean value was much smaller than that on day 0. One possible explanation is the overreaction of the stock market,
and this phenomenon and related theories have been widely studied, as by DeBondt and Thaler (1987). The mean abnormal
return on day 1 is 0.468% (the significance is 5%) before the investment announcement is issued, which indicates the
possibility of information leakage. However, from the results of the binomial distribution test and Wilcoxon signed rank test,
significant test results were obtained on days 0 and 1 but not on day 1, which may reflect a certain number of abnormal
values in the sample that affect the median value of the sample and the positive rate of the abnormal returns, thus influencing
the test results.
Additionally, Table 4 shows the change in the cumulative abnormal returns from day 1, and the t-test also proves the
significance of CARs.
Therefore, based on the above results, we conclude that the stock market reacts positively to SAPI announcements, and
this reaction is timely. Basically, this occurs on the day of the announcement. Thus, Hypothesis 1 is supported.
5.2.2. Robustness test of the direct influence

To ensure that the research results of this study are not affected by the choice of the market model, we use the market-
adjusted model to conduct a sensitivity analysis (Xia et al., 2016). The market-adjusted model assumes that the sample
companies have characteristics similar to those of overall market companies; therefore, the market return rate Rmt is used as
the benchmark for companies. The normal and abnormal returns of company i are calculated as follows:
Rit ¼ Rmt þ εit

(6)
Ait ¼ Rit Rmt
The calculation results of the market-adjusted model are listed in Table 5.

According to the calculation results in Table 5, the mean (median) abnormal return of the market-adjusted model on day
0 of an announcement is 0.77 (0.35%), which is significant at the 1% (5%) level. We note that the abnormal returns obtained
using the market-adjusted model are considerably similar to those of the market model used previously. The mean (median)
abnormal return obtained using the market model was 0.737% (0.557%), which was significant at the 1% (1%) level. Further,
the market-adjusted model shows the following. On day 1, there is still a mean abnormal return with a significance of 5%. On
day 1, the median abnormal return is 0.395%, which is significantly negative at the 5% level and is considerably close to the
calculation results of the market model. Therefore, from the results, the choice of the model does not have a significant impact
on the data analysis in this study. Thus, Hypothesis 1 is supported.
5.3. Influence of company characteristics and contents of announcement (RQ2 & RQ3)
In this section, we test Hypotheses 2e6. Referring to the research of Jacobs and Singhal (2014), we use a cross-sectional
regression model to test the impact of the variables mentioned in Hypotheses 2e5 on the market reaction to SAPI an-
nouncements. However, to test Hypothesis 6, we need to compare and analyze the market reaction of three different types of
ITs, which cannot be realized by a regression model. Therefore, we test Hypothesis 6 by referring to the research methods of
Kolari and Pynnonen (2010) and Yang et al. to compare the mean and median values of the abnormal returns of each sub-
sample. Next, we analyzed and tested the hypotheses proposed above.
Table 3
Abnormal returns of SAPI announcements in the window period.
Window Na Mean abnormal t-test Median abnormal Wilcoxon signed rank test Positive abnormal return Binomial sign test p-
period return valueb return value rate value
day 2 115 0.045% 0.161 0.198% 0.084 46.96% 0.56
day 1 117 0.468% 1.841** 0.068% 0.597 51.28% 0.185
day 0 117 0.737% 2.617*** 0.557% 2.449*** 59.83% 2.034**
day 1 116 0.007% 0.029 0.314% 2.121** 40.52% 1.950**
day 2 117 0.022% 0.089 0.078% 0.442 47.01% 0.555
a
The stock data of some samples in the window period are not complete; thus, some samples involved in the calculation are missing.
b
t-test is one-tailed; *p 0.10, **p 0.05, and ***p 0.01.
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Table 4
Cumulative abnormal returns.
Window period N Accumulated mean abnormal returnsa t-test valueb Standard deviation
(2,1) 117 0.492% 1.257 0.0418
(2,0) 117 1.184% 2.204** 0.0571
(2,1) 116 1.096% 1.676** 0.0689
(2,2) 117 1.091% 1.458 0.0788
a
Cumulative abnormal returns are calculated from day 1.
b
The t-test is one-tailed; *p 0.10, **p 0.05, and ***p 0.01.
Table 5
Data results (market-adjusted model).
Window Na Mean abnormal t-test Median abnormal Wilcoxon signed rank test Positive abnormal return Binomial sign test
period return valueb return value rate value
day 2 115 0.08% 0.305 0.05% 0.098 46.96% 0.560
day 1 117 0.46% 1.809** 0.19% 0.405 43.59% 1.294
day 0 117 0.77% 2.715*** 0.35% 2.312** 58.12% 1.664**
day 1 116 0.04% 0.169 0.395% 2.185** 35.34% 3.064***
day 2 117 0.04% 0.166 0.12% 0.830 48.72% 0.185
(Note: Tests are one-sided tests; *p<¼0.10, **p<¼0.05, and ***p<¼0.01).
5.3.1. Cross-sectional regression analysis

In this section, we use cross-sectional regression analysis to test Hypotheses 2e5. The dependent variable in the model is
the abnormal return of the sample company on day 0. The independent variables include two parts: the variables corre-
sponding to the hypotheses and the control variables.
We used the following cross-sectional regression model for our analysis:
CARi ¼ b0 þ b1 I þ b2 LAR þ b3 IO þ b4 ID þ b5 CP þ b6 S þ b7 RPT þ εi (7)
CARi represents the abnormal return of company i on day 0 of the window period. b0 is the intercept. b1 eb7 are the
coefficients of the variables. εi is the error term for the model. We used SPSS 20 to calculate multiple regression. The results of
the cross-sectional analysis are shown in Table 6.
Table 6 presents the results of the regression analysis. The parameters of the company's industry are negative and sig-
nificant at the 5% level, indicating that the company's industry significantly affects the market reaction. However, notably,
contrary to the hypotheses in this paper, the regression result shows that the market reaction of non-agricultural companies
is more positive than that of agricultural companies. Therefore, Hypothesis 2 is rejected.
From the data in Table 6, we find that the parameter of the LAR is positive and significant at the 5% level, indicating that the
size of the LAR significantly affects market reactions. Companies with high liability-asset ratios are more likely to create a
more significant market reaction. This regression result is consistent with those of some studies (Jacobs and Singhal, 2014).
Therefore, Hypothesis 3 is supported.
The IO parameter in Table 6 is negative, indicating that the market reaction has a more positive reaction to a sole pro-
prietorship; however, the relationship is not significant. The reason that the coefficient in the regression model is not
Table 6
Cross-sectional regression analysis results.
A: Model description
Model parameters R2 Adjusted R2 Durbin-Watson value F-value

Parameter value 0.107 0.047 2.272 1.789
B: Coefficient estimate
Variable Symbolic expectation Parameter estimates t-test valuea Variance inflation factor VIF
Intercept b0 0.018 0.097 e
Industry I þ 0.036 1.993** 1.078
Liability-asset ratio LAR þ 0.083 1.722** 1.184
Investment options IO þ 0.007 0.320 1.052
Investment Directions ID þ 0.026 1.456* 1.404
Control power CP þ 0.025 1.087 1.054
Size S þ 0.001 0.033 1.443
Related Party Transactions RPT þ 0.016 0.548 1.256
a
This is a one-sided test; *p 0.10, **p 0.05, and ***p 0.01).
398
significant might be the addition of the control variables, which affect the fitting effect of the model. Therefore, Hypothesis 4
is rejected.
As shown in Table 6, the ID parameter is positive and significant at the 10% level, which indicates that the IDs of companies
in SAP will significantly affect the market reaction. The market reaction to inward investments is more positive. Therefore,
Hypothesis 5 is supported.
5.3.2. Influence of the investment targets of SAP

According to the ITs of SAP, we divide the 118 announcements into three categories: SAP socialized services, agricultural
production chain optimization, and smart technology and equipment. In this section, we verify our hypothesis by comparing
the mean and median abnormal returns of each subsample.
Table 7 presents the statistical results for the three ITs. There are 39 announcements (33.34%) that contain information on
SAP socialized services. The mean (median) abnormal return is 0.872% (0.732%), which is significant at the 1% (1%) level, and
69.23% of abnormal returns are positive, which is significantly higher than 50% at the 5% level. Further, there are 42 in-
vestment announcements (accounting for 35.90%), including smart technology and equipment, and the mean (median)
abnormal return is 1.492% (0.440%), which is significant at the 5% (5%) level. Additionally, the abnormal returns on in-
vestments in agricultural production chain optimization are not significant. Based on these results, we find that the abnormal
returns of SAP socialized services are significantly higher than those of smart technology, equipment, and other types of
investment. That is, the investments of companies in SAP socialized services, smart technology, and equipment will obtain
higher earnings in the stock market. Thus, Hypothesis 6 is supported.
5.3.3. Robustness test of the adjustment factors

For Hypotheses 3 and 5, which had significant test results, we further analyze the abnormal returns of different sub-
samples to test the robustness of the hypothesis. We divide the total sample into two subsamples according to each hy-
pothesis and compare the mean (median) abnormal returns of each subsample. Table 8 shows the results of the classification
statistics of abnormal returns from investment announcements in the window period of day 0 according to the industry and
IDs of the company.
We further test the abnormal returns by dividing the sample into two subsamples according to the industry of the in-
vestment company. The results are shown in Part A of Table 8. The mean (median) abnormal return for the investment
announcements issued by non-agricultural companies is 1.357% (0.761%), which is significant at the 1% (1%) level. The mean
(median) abnormal return of the investment announcements of agricultural companies is 0.241% (0.214%), which is not
significant. Clearly, non-agricultural companies have a more positive response to the stock market than agricultural com-
panies, which is contrary to Hypothesis 2.
Additionally, we test the abnormal returns of the two subsamples divided by the IDs. The results are shown in Part B of
Table 8. The mean (median) abnormal return of inward investment is 1.384% (0.920%), which is significant at the 1% (1%) level.
However, the mean (median) abnormal return of outward investment was 0.317% (0.155%), which was not significant.
Clearly, inward investment produces a more positive market reaction than outbound investment, which is consistent with
Hypothesis 4.
5.3.4. Model endogeneity and instrumental variable (IV) method

In our model, the selected variables, such as industry, LAR, IOs, IDs, CP, size, and RPTs, are all supported by data in the
samples, and there is basically no measurement error. The source of endogeneity mainly comes from errors in the missing
variables. According to Table 6, the variables that have a significant relationship with CAR are industry (I), liability-asset ratio
(LAR), and investment direction (ID). Further, Industry (I) has a counterintuitive negative correlation with the CAR. Based on
the study of Cui et al. (2021), we take Industry (I) as the core variable and other variables as the control variables, focusing on
the impact of industry (I) on CAR. Moreover, to address potential endogeneity, we apply the instrumental variable (IV)
method, which has been widely used in similar investigations (Wooldridge, 2006).
We use the city location of the company issuing the announcement as instrumental variable IV. This was inspired by the
announcement of the first batch of national smart city pilot lists by the General Office of the Ministry of Housing and Urban-
Table 7
Statistical results for the investment target subsamples.
Socialized service Production chain optimization Technology and equipment

N 39 36 42
Proportion of sample 33.34% 30.77% 35.90%
Mean abnormal return 0.872% 0.240% 1.492%
t-test value a 3.104*** 0.432 2.133**
Median abnormal return 0.732% 0.317% 0.440%
Wilcoxon signed rank test value 2.861*** 0.236 1.782**
Positive abnormal return rate 69.23% 44.44% 64.29%
Binomial sign test value 2.242** 0.500 1.697**
F-value 3.209
a
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Table 8
Classification statistics of abnormal returns.
n Mean abnormal t-test Median abnormal Wilcoxon signed rank test Positive abnormal Binomial sign test F-
return value return value return rate value value
A: By industry of the investment companies
Agriculture 65 0.241% 0.729 0.214% 0.539 55.38% 0.744 0.949
Other industries 52 1.357% 2.888*** 0.761% 2.932*** 65.38% 2.080**
B: By investment directions
Outward 71 0.317% 0.825 0.155% 0.361 46.48% 0.475 1.837
investment
Inward 46 1.384% 3.585*** 0.920% 3.655*** 80.43% 3.981***
investment
a
where n represents the sample size involved in the calculation.
b
Table 9
Regression results of the instrumental variable City on Industry.
A: Model description I ¼ b0 þ b1 City þ ui

Parameter value 0.349 0.115 1.472 16.138
Variable Parameter estimates t-test valuea
Intercept b0 0.453 8.964***
City City 0.390 4.017***
a
This is a one-sided test; *p 0.10, **p 0.05, and ***p 0.01).
Table 10
Regression results of the instrumental variable City on CAR.
A: Model description CARi ¼ b0 þ b1 City þ ui

Parameter value 0.023 0.001 2.244 0.059
a
Variable Parameter estimates t-test value
Intercept b0 0.008 2.360**
City City 0.002 0.243
a
This is a one-sided test; *p 0.10, **p 0.05, and ***p 0.01.
Rural Development of China in 2013.1 A similar approach for defining instrumental variables can be found in existing studies
(Faber, 2014).2 If the city belongs to the list of the first batch of national smart cities, we mark it as 1 and otherwise as 0.
Obviously, the construction of a smart city will affect the industrial layout of a city (Guo et al., 2016). However, CAR is caused
by an event completely different from the normal operation of the company, and the construction of a smart city is a long-
term process. Therefore, the construction of a smart city will not have a significant impact on the company's abnormal return
(CAR) at a specific time. We conduct regression tests and find that City (IV) is significant for industry (I) but not for CAR. This
result verifies the reliability of IV, as shown in Tables 9 and 10.
According to Tables 9 and 10, we expect that our chosen IV will be an effective instrumental variable. We use the Durbin-
Wu-Hausman (DWH) test and find that Industry (I) is indeed an endogenous variable because the p-values of the DWH test
are less than 0.05. Subsequently, we use GMM estimation to examine the potential endogeneity of our model, and the results
are shown in Table 11.
1
Notice of the General Office of the Ministry of Housing and Urban-Rural Development on Announcement of the 2013 National Smart City Pilot
Listhttp://www.mohurd.gov.cn/wjfb/201308/t20130805_214634.html (in Chinese).
2
In our study, we use the location (i.e., city) of the company being studied as an instrumental variable, and Faber (2014) also uses the location (i.e.,
location at minimum spanning tree of the route) of the city being studied as an instrumental variable.
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Table 11
Cross-sectional regression analysis results with instrumental variables.
A: Model description

Parameter value 0.107 0.047 2.280 1.791
Variable Symbolic expectation Parameter estimates t-test valuea Variance inflation factor VIF
Intercept b0 0.018 0.101 e
Industry I e 0.041 2.004** 1.014
Controls Yes Yes Yes Yes Yes
a
This is a one-sided test; *p 0.10, **p 0.05, and ***p 0.01.
The results in Table 11 show that the coefficient of Industry (I) is significantly negative at the 5% level. The GMM estimation
supports our initial resultsdafter using the instrumental variable to exclude endogeneity, Industry (I) still has a negative
impact on CAR. Further, we find that our model works well in explaining the relationship between independent variables and
the dependent variable when comparing Table 11 with Table 6. This shows that the instrumental variable (IV) method is a
good identification strategy as well in this study.
5.4. Summary and discussion of the results
In this section, we present a comparative analysis of the results and provide the corresponding explanations for the
regression results.
5.4.1. Summary of the results

The results of all hypothesis tests in this study are listed in Table 12. Given the five characteristic factors that influence the
market reaction to SAPI announcements, including two company-level factors and three investment-announcement content
factors, this study proposes a total of six hypotheses, with Hypothesis 1 as the basic hypothesis.
5.4.2. Discussion
Hypothesis 1 is the basic hypothesis. We conclude that the SAPI announcement will entail a significant positive market
reaction. For Hypothesis 1, we find a failure to reject. This delivers a positive message that the SAP field is generally favored by
the capital market. The reasons are as follows. On the one hand, investment in agriculture is often supported by government
policies to secure social warfare. Currently, China has issued a series of encouraging policies to promote the intelligent
transformation of agricultural production, which will undoubtedly induce a market reaction to investment in SAP. On the
other hand, with the progress of society and the development of intelligent technology, the field of SAP shows considerable
market potential and development pace, which are key concerns for investors to be optimistic.
In research on the influencing factors of SAPI announcements, the results of the cross-sectional analysis show that
compared with agricultural companies, non-agricultural companies’ SAPI announcements will cause significant positive
abnormal returns. This finding is different from that of Guo and Huang (2017) and is contrary to our initial hypothesis. We
propose the following explanations. According to the statistics of the sample companies, we note that non-agricultural
companies mostly belong to the high-tech industry, which is a popular industry undergoing rapid development in China.
The investment behavior of such companies often receives more positive attention. However, traditional agricultural com-
panies are more generally regarded as running mature or sunset businesses, which attract less interest from investors than
high-tech companies. Additionally, the behavior of cross-industry investment can attract more attention from investors, and
the diversified industrial layout of companies can deal better with business risks, realize the sustainable development of
companies, and bring greater flexibility to companies.
Second, according to the regression results, we find that the company's LAR is positively correlated with abnormal returns,
which means that we fail to reject Hypothesis 3. The size of the LAR can significantly affect market reactions. However, a
higher LAR also indicates greater financial default risk. Based on the calculation of the LAR of sample companies in this study,
we find that only 10% of companies have a LAR higher than 70%. According to Davydov (2016), the appropriate level of the LAR
is 40%e60%. Therefore, we believe that within a certain range, companies with high liability-asset ratios tend to have more
significant market reactions.
Third, we divided the announcement content according to the IDs and found that inward investment can bring a more
positive market reaction than outward investment; therefore, Hypothesis 5 of this study is not rejected. Companies that
choose outward investments are often at a mature stage. Outward investment is also a signal indicating a lack of lucrative
projects in the main business areas of the company. In this case, the investment is less attractive to investors, as the company
does not have growth potential. Conversely, companies choosing inward investments are often in the stage of upward growth,
and their huge development capability can arouse more interest from investors. On the other hand, inward investment in SAP
often involves the introduction of smart technology, equipment, and talent by companies (Frija et al., 2020), which is the main
401
Table 12
Summary of the hypothesis tests.
Hypothesis Content Result

Hypothesis 1 The SAPI announcement will result in a positive market reaction. Failure to reject
Hypothesis 2 Compared with non-agricultural companies, the market reaction of agricultural companies to SAPI Rejected
announcements is greater.
Hypothesis 3 Investment companies with higher liability-asset ratios are more inclined to trigger a more significant market Failure to reject
reaction.
Hypothesis 4 From the perspective of investment options, the market reaction of a joint venture is higher than that of a sole Rejected
proprietorship.
Hypothesis 5 Compared with outward investment, the market reacts more to inward investment. Failure to reject
Hypothesis 6 Compared with investment in agricultural production chain optimization and smart technology and equipment, Failure to reject
investment in SAP socialized services can generate a more positive market reaction.
driving force for the sustainable performance of companies. Therefore, it can more easily attract investors’ attention and
recognition.
Fourth, by comparing the market reactions of these ITs, we find that the investments in SAP socialized services and smart
technology and equipment can have positive market reactions (compared with the sample population). The abnormal return
on the investment in SAP socialized services is the highest. Therefore, we fail to reject Hypothesis 6. This suggests that the
construction of an SAP socialized service system is an important starting point for the development of sustainable agriculture
and efficient agriculture. Only specialized, large-scale, and efficient SAP socialized service systems can promote the smart
upgrading of agricultural production. This finding is consistent with China's current goal of sustainable agriculture.
6. Research conclusions and future work
6.1. Research conclusions
This study focuses on China's listed companies, studies the stock market reaction to the SAPI announcement through an
empirical method, and tests the relevant factors that affect the market reaction. Based on the calculation and analysis in
Section 4, our study reached the following important conclusions.
First, this study is the first to use the event study method to explore the impact of the SAPI announcements issued by
Chinese listed companies on the stock market reaction and the main factors that affect the market reaction. It shows that the
SAPI announcement can indeed have a positive impact on the stock market and fill the research gap in the field of SAPI.
Second, this study divides the influencing factors of SAPI announcements into two aspects. One is the company charac-
teristic factors, including the industry of the investment company and the LAR of the company, which cause positive reactions
to the stock market of SAPI announcements. The other is the content of the investment announcement, where different IDs
cause different reactions in the stock market, and inward investment can cause more positive market reactions than outward
investment. The degree of the stock market reaction varies with the ITs of the companies.
Finally, we obtained interesting findings based on the regression results. We find that non-agricultural companies can
cause more positive market reactions than agricultural investment companies when they invest in SAP. Additionally,
compared with the agricultural production chain optimization, investment in SAP socialized services and smart technology
and equipment can produce more positive market reactions. The abnormal return from the investment in SAP socialized
services is the highest.
6.2. Management implications
Based on the above conclusions, we provide the following decision-making references and lessons for SAP from both
theoretical and practical aspects.
From a theoretical perspective, this study further expands the relevant research on agricultural production investment and
elevates it to the field of smart agriculture, which fills the gap in the field of SAPI. The study provides a direction for the
sustainable practice of agriculture at the strategic level. Second, previous studies, such as that of Buckley (2018) and Liu et al.
(2018), have demonstrated a positive link between investment behavior and corporate performance. We further studied the
investment issues related to SAPs on this basis. From the perspective of investment-announcement content and investment
company factors, we consider the impact of various factors on the market reaction to SAPI announcements, which provides
new references and enlightenment for research on the influencing factors of SAPI.
From a practical perspective, the results of this study have the following implications. First, the stock market's reactions to
different types of SAPI announcements differ. According to the conclusion of Hypothesis 2, we find that the market reaction of
non-agricultural companies to the SAPI announcement is more positive. Therefore, for SAP activities, companies choose a
cross-industry investment, which makes it easier to obtain the favor of the market. Second, when investing in SAP, company
402
managers should pay more attention to their own financial factors, such as the company's LAR, to make a better judgment on
the market reaction to the investment. Further, the verification results of Hypothesis 5 indicate that inward investment is
more conducive to improving the stock market reaction to SAPI than outward investment. This shows that the market has a
conservative attitude toward most investments. Owing to the higher risk and greater uncertainty of outward investment,
investors should be more cautious about the ID choice when investing. Finally, if managers can consider the impact of so-
cialized services on investment activities and focus on investment in the content related to SAP socialized services, it will have
a more positive effect on the short-term stock market reaction of the company.
6.3. Future work
This research can be extended into two areas. First, in this study, the market reaction and shareholder value are based on
short-term evaluations. Nevertheless, this does not mean that the company will perform well in the long run. Future research
may empirically test the long-term performance of companies engaged in SAPI activities. Second, the sample data were
obtained from China. As a developing country, China's introduction and research on the concept of smart agriculture started
late, while the agricultural market environment in developed countries is relatively more mature. Another interesting di-
rection for future research is to compare samples from developing and developed countries.
Declaration of competing interest
The authors declare that there is no conflict of interests regarding the publication of this article.
Acknowledgement
This research was funded by Major Program of the National Social Science Foundation of China (grant number No.
18ZDA060).The reviewers' comments are also highly appreciated.
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Journal of Management Science and Engineering 7 (2022) 387e404

Contents lists available at ScienceDirect

Journal of Management Science and Engineering

Effects of smart agricultural production investment

2.1. Smart agriculture and agricultural production investment

2.2. Abnormal returns and inﬂuencing factors of SAPI announcements

2.3. Summary of the literature review

3. Research hypothesis and framework

3.1. Research hypotheses

3.1.1. SAPI announcements and market reaction

3.1.2. Company characteristics and market reaction

(1) The industry of the investment companies

(2) Liability-asset ratio of the company

3.1.3. Contents of SAPI announcement and market reaction

(3) Investment options (sole proprietorship or joint ventures)

(4) Investment directions (inward versus outward investment)

(5) Investment targets

3.2. Hypothesis summary and research framework

Fig. 1. Research framework.

4. Sample selection and description

4.1. Collecting and screening samples

4.2. Sample description for the measurement of the main variables

Finally, the control variables are considered.

Fig. 2. Sample selection process of SAPI announcements.

5. Empirical analysis and results

5.1. Research methodology

Rit ¼ ai þ bi Rmt þ εit (1)

Fig. 3. Sample source description.

Announcement time Number of announcements Proportion of the total

The abnormal return of stock i on day t is the following:

5.2. Direct impact of SAPI announcements (RQ1)

5.2.1. Market reaction to SAPI announcements

5.2.2. Robustness test of the direct inﬂuence

Rit ¼ Rmt þ εit

The calculation results of the market-adjusted model are listed in Table 5.

(Note: Tests are one-sided tests; *p<¼0.10, **p<¼0.05, and ***p<¼0.01).

5.3.1. Cross-sectional regression analysis

CARi ¼ b0 þ b1 I þ b2 LAR þ b3 IO þ b4 ID þ b5 CP þ b6 S þ b7 RPT þ εi (7)

Model parameters R2 Adjusted R2 Durbin-Watson value F-value

5.3.2. Inﬂuence of the investment targets of SAP

5.3.3. Robustness test of the adjustment factors

5.3.4. Model endogeneity and instrumental variable (IV) method

Socialized service Production chain optimization Technology and equipment

A: Model description I ¼ b0 þ b1 City þ ui

Model parameters R2 Adjusted R2 Durbin-Watson value F-value

A: Model description CARi ¼ b0 þ b1 City þ ui

Model parameters R2 Adjusted R2 Durbin-Watson value F-value

Model parameters R2 Adjusted R2 Durbin-Watson value F-value

5.4. Summary and discussion of the results

5.4.1. Summary of the results

Hypothesis Content Result

6. Research conclusions and future work

6.1. Research conclusions

6.2. Management implications

6.3. Future work

Declaration of competing interest

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(Note: Tests are one-sided tests; p<¼0.10, p<¼0.05, and p<¼0.01).