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The Association Between Investment Opportunity Set Proxies and Realized Growth
Author(s) -
Kallapur Sanjay,
Trombley Mark A.
Publication year - 1999
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00265
Subject(s) - unobservable , proxy (statistics) , economics , econometrics , investment (military) , association (psychology) , capital investment , capital expenditure , mathematics , statistics , finance , psychology , politics , political science , law , psychotherapist
Realized growth can be viewed as a proxy for the unobservable investment opportunity set (IOS) of the firm, and provides a benchmark against which IOS proxy variables can be compared. Results from such a comparison indicate that many of the variables from earlier studies, including book‐to‐market measures and capital expenditure to assets ratios are consistently correlated with subsequently realized growth. However, R&D intensity and E/P ratios do not exhibit any consistent association with subsequent growth indicating that they may not be valid IOS proxies.