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Firm Value, Risk, and Growth Opportunities

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Author Info
Hyun-Han Shin
Rene M. Stulz

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Abstract

We show that Tobin's q, as proxied by the ratio of the firm's market value to its book value, increases with the firm's systematic equity risk and falls with the firm's unsystematic equity risk. Further, an increase in the firm's total equity risk is associated with a fall in q. The negative relation between the change in total risk and the change in q is robust through time for the whole sample, but it does not hold for the largest firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7808.

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Date of creation: Jul 2000
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Handle: RePEc:nbr:nberwo:7808

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G30 - Financial Economics - - Corporate Finance and Governance - - - General
G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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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. John Y. Campbell & Martin Lettau, 1999. "Dispersion and Volatility in Stock Returns: An Empirical Investigation," NBER Working Papers 7144, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Smith, Clifford W. & Stulz, Ren? M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 391-405, December. [Downloadable!]
  3. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  4. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(1), pages 1-42.
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  5. Duffee, Gregory R., 1995. "Stock returns and volatility A firm-level analysis," Journal of Financial Economics, Elsevier, vol. 37(3), pages 399-420, March. [Downloadable!] (restricted)
  6. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-58, December. [Downloadable!] (restricted)
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  7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  8. Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. " Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-54, September. [Downloadable!] (restricted)
  9. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December. [Downloadable!] (restricted)
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  10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  11. Minton, Bernadette A. & Schrand, Catherine, 1999. "The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing," Journal of Financial Economics, Elsevier, vol. 54(3), pages 423-460, December. [Downloadable!] (restricted)
  12. Peter Tufano, 1998. "The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 1015-1052, 06. [Downloadable!] (restricted)
  13. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July. [Downloadable!] (restricted)
  14. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, 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. Rosenberg, Matts, 2003. "Stock Option Compensation in Finland: An Analysis of Economic Determinants, Contracting Frequency, and Design," Working Papers 496, Hanken School of Economics. [Downloadable!]
  2. Lucian Bebchuk & Alma Cohen, 2004. "The Costs of Entrenched Boards," NBER Working Papers 10587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Hillegeist, Stephen A. & Peñalva, Fernando, 2004. "Stock option incentives and firm performance," IESE Research Papers D/535, IESE Business School. [Downloadable!]
  4. Ralf Bebenroth & Donghao Li, 2006. "Performance Impact at the Board Level: Corporate Governance in Japan," Discussion Paper Series 179, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  5. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2006. "Internationalization and the evolution of corporate valuation," Policy Research Working Paper Series 3933, The World Bank. [Downloadable!]
    Other versions:
  6. Bronwyn Hall, 2006. "R&D, productivity and market value," IFS Working Papers W06/23, Institute for Fiscal Studies. [Downloadable!]
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