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Investment and firm value: an analysis using panel data

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Author Info
Esther Del Brio
Alberto De Miguel
Julio Pindado

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Abstract

This study develops a model in order to study in depth the relationship between investment and firm value. This model is estimated by using panel data methodology, obtaining results for Spanish firms. These results indicate a direct but inversely proportional relationship between the volume of investment and firm value. In addition, the empirical evidence shows that the creation of value persists over the long run, although no distinction is found between firms that announce their investments (divestments) and those that do not. When investment opportunities are introduced into the analysis, results indicate that the creation of value is greater for those firms with valuable investment opportunities. Finally, our results corroborate the free cash flow theory, since there is a decrease in value for investing firms with a high level of free cash flow.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 13 (2003)
Issue (Month): 12 (December)
Pages: 893-903
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Handle: RePEc:taf:apfiec:v:13:y:2003:i:12:p:893-903

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  3. Afshar, K. A. & Taffler, R. J. & Sudarsanam, P. S., 1992. "The effect of corporate divestments on shareholder wealth: The UK experience," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 115-135, February. [Downloadable!] (restricted)
  4. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
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  5. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
  6. Bruce M. Burton & A. Alasdair Lonie & David M. Power, 1999. "The Stock Market Reaction to Investment Announcements: The Case of Individual Capital Expenditure Projects," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 26(5&6), pages 681-708. [Downloadable!] (restricted)
  7. Esther B. Del Brio & Javier Perote & Julio Pindado, 2003. "Measuring the Impact of Corporate Investment Announcements on Share Prices: The Spanish Experience," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 30(5-6), pages 715-747. [Downloadable!] (restricted)
  8. Stephen C. Vogt, 1997. "Cash Flow and Capital Spending: Evidence from Capital Expenditure Announcements," Financial Management, Financial Management Association, vol. 26(2), Summer.
  9. Galeotti, Marzio & Schiantarelli, Fabio & Jaramillo, Fidel, 1994. "Investment Decisions and the Role of Debt, Liquid Assets and Cash Flow: Evidence from Panel Data," Applied Financial Economics, Taylor and Francis Journals, vol. 4(2), pages 121-32, April. [Downloadable!] (restricted)
  10. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September. [Downloadable!] (restricted)
  11. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1991. "A test of the free cash flow hypothesis*1: The case of bidder returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 315-335, October. [Downloadable!] (restricted)
  12. McConnell, John J. & Muscarella, Chris J., 1985. "Corporate capital expenditure decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 14(3), pages 399-422, September. [Downloadable!] (restricted)
  13. de Miguel, Alberto & Pindado, Julio, 2001. "Determinants of capital structure: new evidence from Spanish panel data," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 77-99, March. [Downloadable!] (restricted)
  14. Chung, Kee H. & Wright, Peter & Charoenwong, Charlie, 1998. "Investment opportunities and market reaction to capital expenditure decisions," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 41-60, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Queiroz, Valdoceu de & Pindado, Julio & Torre, Chabela de la, 2006. "How Do Firm Characteristics Influence the Relationship Between R&D and Firm Value?," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2006-09, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
  2. Josep A. Tribó, 2005. "An analysis of the length of labour and financial contracts: a study for Spain," Applied Economics, Taylor and Francis Journals, vol. 37(8), pages 905-916, May. [Downloadable!] (restricted)
  3. Neves, Elisabete & Pindado, Julio & Torre, Chabela de la, 2006. "Dividends: New evidence on the catering theory," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2006-14, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
  4. Chikashi Tsuji, 2006. "Does EVA beat earnings and cash flow in Japan?," Applied Financial Economics, Taylor and Francis Journals, vol. 16(16), pages 1199-1216, November. [Downloadable!] (restricted)
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