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Capital Investments and Stock Returns in Japan *
Author(s) -
Titman Sheridan,
Wei K.C. John,
Xie Feixue
Publication year - 2009
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2009.01087.x
Subject(s) - keiretsu , stock (firearms) , leverage (statistics) , monetary economics , economics , capital structure , cash flow , business , financial economics , finance , debt , mechanical engineering , machine learning , computer science , engineering
The negative relation between capital investments and subsequent stock returns, found in the United States, is not observed in Japan, which is inconsistent with the risk‐based explanation. More specifically, we find no significant relation between capital expenditures ( CE ) and subsequent stock returns for either the entire sample or for keiretsu firms. However, in the pre‐1990 subperiod, there is a positive relation between increased CE and subsequent risk‐adjusted returns among independent firms, especially for those firms that have high cash flows and/or low leverage. These results are consistent with existing evidence that independent firms are financially constrained in the pre‐1990 period and that keiretsu main bank monitoring effectively controls the overinvestment problem.