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Empirical Evidence on Capital Investment, Growth Options, and Security Returns
Author(s) -
ANDERSON CHRISTOPHER W.,
GARCIAFEIJÓO LUIS
Publication year - 2006
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2006.00833.x
Subject(s) - economics , valuation (finance) , financial economics , growth stock , stock (firearms) , empirical evidence , investment (military) , cost of capital , monetary economics , stock market , finance , restricted stock , microeconomics , mechanical engineering , profit (economics) , paleontology , philosophy , horse , epistemology , politics , political science , law , engineering , biology
Growth in capital expenditures conditions subsequent classification of firms to portfolios based on size and book‐to‐market ratios, as in the widely used Fama and French (1992, 1993) methods. Growth in capital expenditures also explains returns to portfolios and the cross section of future stock returns. These findings are consistent with recent theoretical models (e.g., Berk, Green, and Naik (1999)) in which the exercise of investment‐growth options results in changes in both valuation and expected stock returns.