ASB4416 FINANCIAL MODELLING 2010-2011
代写ASSIGNMENT B: NUCLEAR INDUSTRY / THREATS TO LEGITIMACY
ANNIKA BEELITZ / JO WELLS
INTRODUCTION
This study focuses on the legitimacy threat in the form of a nuclear incident faced by Vattenfall, a Swedish state-owned power company in Germany.
The stock price reaction to major events affecting a company’s legitimacy can be brutal. This assignment asks you to provide the CEO of an unspecified European nuclear power generator with an assessment of the potential impact on share prices in the European nuclear industry of an incident similar to that which occurred at Krümmel. Specifically, the CEO would like to know:
How much of an impact did the negative news have on share prices in the case of the Krümmel incident?
Was there a difference in the stock market’s reaction to news relating to Safety and news relating to Confidence?
BACKGROUND
Vattenfall operates two nuclear power plants in Germany. On the 28th of June 2007, a fire erupted in a transformer building of Vattenfall’s nuclear power plant Krümmel, near Hamburg. As a consequence, the plant was automatically shut down and had to stay offline for several months during which an investigation into the incident took place. Vattenfall’s management was heavily criticised by the media and politicians for not being able to guarantee nuclear safety, and also for not properly informing the public about the incident.
Annika Beelitz will give a mini-lecture in the tutorial slot on Thursday 04 November to give you some background to her research on legitimacy threats and, in the case of the Vattenfall incident, the safety and confidence aspects of the legitimacy crisis. After the mini-lecture, Jo Wells will give you some tips on how you might go about the analysis.
Table 1 gives a summary of the key events following the Krümmel incident.
The table shows the time each news item was published online (note: you may find a price reaction earlier if the news was released at an earlier time by a data provider such as Reuters). The times should help you decide which day’s stock return you would expect to have been impacted by the news.
The table also identifies whether each event is primarily associated with the Safety or Confidence aspects of the crisis.
Table 1: Timeline of Events relating to the Krümmel incident
Date of Event News
Time 1 News
Time 2 Event Safety Confidence
28/06/2007 20:59 19:04 Fire in transformer building at nuclear power plant Krümmel, automatic shutdown of the plant Y
03/07/2007 04/07: 00:09 04/07: 00:00 Supervisory authority informs public of abnormalities during the shutdown at Krümmel (unplanned opening of valves during shutdown on the 28th → temporary drop of pressure in reactor building) Y Y
04/07/2007 13:55 n/a Greenpeace criticises Vattenfall and supervisory authority for poor provision of information Y
05/07/2007 19:02 06/08: 00:00 Supervisory authority criticises Vattenfall for poor provision of information Y
09/07/2007 13:35 11:44 Krümmel stays offline for an indefinite time; supervisory authority threatens to withdraw licence to operate nuclear power plant Y
10/07/2007 20:39 15:39 Chancellor Merkel demands quick and proper investigation; Environment Minister Gabriel accuses Vattenfall of hindering the inspection works Y
16/07/2007 20:03 n/a Supervisory authority criticises communication processes at Krümmel Y
News Time 1: time the news was published on the website of “Der Spiegel”
News Time 2: time the news was published on the website of “Die Welt”
note that the stock market may have received the news earlier than these times (via Reuters, for example)
DATA
The following seven companies have been identified as being relevant for the purposes of the analysis:
Fortum OYJ
Enel Spa
Iberdrola SA
Endesa SA
Enbw Energie Baden-Wurttemberg AG
RWE AG
E On AG
You will need to download the daily Return Index data for each company together with the data you need for your chosen model of expected returns (this will require you to think about, and justify, your choice of a Market Index). Remember if using CAPM that the risk-free rate you use needs to cover the same period as the market return - i.e. you will need to convert the annual interest rate you download from Thomson One Banker into a daily equivalent.
You will need to carry out a simple regression analysis using data covering a suitable time period to obtain the coefficients for each company. Using these coefficients you will then use the same model to calculate the expected returns for each company in the data sample for each day in the period of interest (June-July 2007). Finally, you will calculate the corresponding abnormal returns.
You will now have a sample of abnormal returns to work with. The key question is: are those abnormal returns significantly different from zero? If the market did penalise competitor firms for the Vattenfall incident, you might expect their abnormal returns on the important days to be significantly negative. Alternatively, of course, competitors may have benefited from Vattenfall's plight, in which case the abnormal returns you calculate may be significantly positive.
REQUIRED
A report presenting your findings to the investor. The report should include
A summary of the key question(s) motivating the report
A summary of the data to be used in the analysis (including descriptive statistics as appropriate)
A brief summary of the approach used (sufficient to inform the CEO of all the key aspects of your methodology and to enable him/her to find further information if required; a general essay on Event Study Methods is NOT required, nor is extensive background information on the companies in the data sample!)
Presentation of your key findings
A discussion of the possible limitations of your analysis
Recommendations
A short summary/conclusion
There is no specific word limit for the report. The reason for this is that we do not wish to prevent those students who wish to undertake a more in-depth analysis from presenting their work fully. Please note, though, that marks WILL be allocated specifically for the structure, presentation and conciseness of your written work. This means that you WILL be indirectly penalised if you submit 15 pages when your analysis really only justifies 4, but you will not be penalised at all if you submit 15 pages where these are necessary to fully explain your (more detailed) analysis to the investor.
The mark scheme we will use to assess the reports is as follows:
General Structure and Presentation, Conciseness 15%
Clear exposition of problem and approach to be taken in the analysis 15%
Evidence of an Appropriate / Correct Analysis 50%
Clear Explanation/Discussion of Results, Recommendations and Limitations 20%
As discussed in the lectures, there is no one “correct” answer in Financial Modelling, nor does the point ever come where the analysis has gone as far as it possibly can. To give you an idea of the marking for the Analysis section, we will give around/
20/50 marks for an analysis which is basically correct but maybe contains a few errors/flaws
30/50 marks for a correct and sensible analysis, clearly explained, including consideration of the possibly different reaction to news relating to Safety and to Confidence
Higher marks (up to and including 50/50 as appropriate) for more developed analyses, possibly considering whether the reaction was different domestically (i.e. for German competitors) than internationally (for the competitors in other European markets), or other appropriate refinements