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Investment Irreversibility, Cash Flow Risk, and Value‐Growth Stock Return Effects
Author(s) -
Prombutr Wikrom,
Lockwood Larry,
Diltz J. David
Publication year - 2010
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2010.00248.x
Subject(s) - growth stock , cash flow , economics , stock (firearms) , return on investment , monetary economics , rate of return , return of capital , value (mathematics) , investment (military) , econometrics , financial economics , stock market , microeconomics , investment performance , finance , restricted stock , mathematics , mechanical engineering , paleontology , statistics , horse , engineering , biology , production (economics) , politics , political science , law
We simulate results from a simple real options model to provide insight into the value‐growth stock return anomaly. In our model, firms possess either single (“value” firm) or multiple (“growth” firm) investment opportunities. Our model predicts that growth firms: (1) invest sooner, (2) exhibit greater continuity in capital expenditure over time, (3) have lower book‐to‐market ratios, and (4) generate lower rates of return than value firms.