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Value-Enhancing Capital Budgeting and Firm-specific Stock Return Variation

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Author Info
Art Durnev
Randall Morck
Bernard Yeung

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Abstract

We document a robust cross-sectional positive association across industries between a measure of the economic efficiency of corporate investment and the magnitude of firm-specific variation in stock returns. This finding is interesting for two reasons, neither of which is a priori obvious. First, it adds further support to the view that firm-specific return variation gauges the extent to which information about the firm is quickly and accurately reflected in share prices. Second, it can be interpreted as evidence that more informative stock prices facilitate more efficient corporate investment. Copyright 2004 by The American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 59 (2004)
Issue (Month): 1 (02)
Pages: 65-105
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Handle: RePEc:bla:jfinan:v:59:y:2004:i:1:p:65-105

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  3. Kan Li & Randall Morck & Fan Yang & Bernard Yeung, 2003. "Firm-Specific Variation and Openness in Emerging Markets," William Davidson Institute Working Papers Series 2003-623, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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