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- Title
Investment Irreversibility, Cash Flow Risk, and Value-Growth Stock Return Effects.
- Authors
Prombutr, Wikrom; Lockwood, Larry; Diltz, J. David
- Abstract
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.
- Subjects
INVESTMENTS; REAL options (Finance); RATE of return; OPTIONS (Finance); CAPITAL investments
- Publication
Financial Review, 2010, Vol 45, Issue 2, p287
- ISSN
0732-8516
- Publication type
Article
- DOI
10.1111/j.1540-6288.2010.00248.x