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Firm Value, Risk, and Growth Opportunities

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  • Hyun-Han Shin
  • Rene M. Stulz

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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Bibliographic Info

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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  1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 29(2), pages 449-70, May.
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  3. 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.
  4. Smith, Clifford W. & Stulz, René M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 20(04), pages 391-405, December.
  5. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, Elsevier, vol. 37(1), pages 39-65, January.
  6. Geert Bekaert & Guojun Wu, 1997. "Asymmetric Volatility and Risk in Equity Markets," NBER Working Papers 6022, National Bureau of Economic Research, Inc.
  7. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1629-58, December.
  8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  9. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  10. Duffee, Gregory R., 1995. "Stock returns and volatility A firm-level analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 37(3), pages 399-420, March.
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  13. Peter Tufano, 1998. "The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 53(3), pages 1015-1052, 06.
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Cited by:
  1. Paul A. Gompers & Joy Ishii & Andrew Metrick, 2004. "Incentives vs. Control: An Analysis of U.S. Dual-Class Companies," NBER Working Papers 10240, National Bureau of Economic Research, Inc.
  2. Hoje Jo & Maretno Harjoto, 2012. "The Causal Effect of Corporate Governance on Corporate Social Responsibility," Journal of Business Ethics, Springer, Springer, vol. 106(1), pages 53-72, March.
  3. Ross Levine & Sergio L. Schmukler, 2005. "Internationalization and the Evolution of Corporate Valuation," NBER Working Papers 11023, National Bureau of Economic Research, Inc.
  4. Bruno, Valentina G. & Claessens, Stijn, 2007. "Corporate governance and regulation : can there be too much of a good thing ?," Policy Research Working Paper Series 4140, The World Bank.
  5. Hillegeist, Stephen A. & Peñalva, Fernando, 2004. "Stock option incentives and firm performance," IESE Research Papers, IESE Business School D/535, IESE Business School.
  6. Rosenberg, Matts, 2003. "Stock Option Compensation in Finland: An Analysis of Economic Determinants, Contracting Frequency, and Design," Working Papers, Hanken School of Economics 496, Hanken School of Economics.
  7. Bouwman, Christa H.S., 2014. "Managerial optimism and earnings smoothing," Journal of Banking & Finance, Elsevier, Elsevier, vol. 41(C), pages 283-303.
  8. Lucian Bebchuk, . "The Costs of Entrenched Boards," American Law & Economics Association Annual Meetings, American Law & Economics Association 1091, American Law & Economics Association.
  9. Rountree, Brian & Weston, James P. & Allayannis, George, 2008. "Do investors value smooth performance?," Journal of Financial Economics, Elsevier, Elsevier, vol. 90(3), pages 237-251, December.
  10. Matts Rosenberg, 2004. "Firm risk, investment, and employment growth," Journal of Economics and Finance, Springer, Springer, vol. 28(2), pages 164-184, June.
  11. Ralf Bebenroth & Donghao Li, 2006. "Performance Impact at the Board Level: Corporate Governance in Japan," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 179, Research Institute for Economics & Business Administration, Kobe University.
  12. Attiya Y. Javed & Robina Iqbal, 2007. "The Relationship between Corporate Governance Indicators and Firm Value : A Case Study of Karachi Stock Exchange," Governance Working Papers 22198, East Asian Bureau of Economic Research.
  13. Bronwyn Hall, 2006. "R&D, productivity and market value," IFS Working Papers, Institute for Fiscal Studies W06/23, Institute for Fiscal Studies.
  14. Nicolas Kohl & Wolfgang Schaefers, 2012. "Corporate Governance and Market Valuation of Publicly Traded Real Estate Companies: Evidence from Europe," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 44(3), pages 362-393, April.

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