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Capital Investments and Stock Returns in Japan-super-

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  • Sheridan Titman
  • K.C. John Wei
  • Feixue Xie

Abstract

The negative relation between capital investments and subsequent stock returns, found in the United States, is not observed in Japan, which is inconsistent with the risk-based explanation. More specifically, we find no significant relation between capital expenditures ("CE") and subsequent stock returns for either the entire sample or for "keiretsu" firms. However, in the pre-1990 subperiod, there is a positive relation between increased "CE" and subsequent risk-adjusted returns among independent firms, especially for those firms that have high cash flows and/or low leverage. These results are consistent with existing evidence that independent firms are financially constrained in the pre-1990 period and that "keiretsu" main bank monitoring effectively controls the overinvestment problem. Copyright (c) 2009 The Authors. Journal compilation (c) International Review of Finance Ltd. 2009.

Suggested Citation

  • Sheridan Titman & K.C. John Wei & Feixue Xie, 2009. "Capital Investments and Stock Returns in Japan-super-," International Review of Finance, International Review of Finance Ltd., vol. 9(1-2), pages 111-131.
  • Handle: RePEc:bla:irvfin:v:9:y:2009:i:1-2:p:111-131
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    References listed on IDEAS

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    Cited by:

    1. Hairong Tang & Yuqing Shen & Yao-Min Chiang, 2014. "Overinvestment, Underinvestment, Efficient Investment Decrease, and Efficient Investment Increase," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 4(6), pages 752-766, June.
    2. Huang, Lin & Wang, Zijun, 2014. "Is the investment factor a proxy for time-varying investment opportunities? The US and international evidence," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 219-232.
    3. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.

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