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The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms

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  • Chen, Sheng-Syan

Abstract

This paper examines the role of focus versus diversification in explaining the economic impact of corporate capital investments. I find that the stock market's responses to announcements of capital investments are more favorable for focused firms than for diversified firms. I also show that focused firms exhibit significantly better post-investment operating performance than diversified firms. The overall findings in this study suggest that the investment opportunities hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of capital investments on the investing firms.

Suggested Citation

  • Chen, Sheng-Syan, 2006. "The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(02), pages 341-355, June.
  • Handle: RePEc:cup:jfinqa:v:41:y:2006:i:02:p:341-355_00
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    Cited by:

    1. Larry D. Wall & Alan K. Reichert & Hsin-Yu Liang, 2008. "The final frontier : the integration of banking and commerce. Part 1, the likely outcome of eliminating the barrier," Economic Review, Federal Reserve Bank of Atlanta.
    2. Chen, Sheng-Syan & Chen, I-Ju, 2012. "Corporate governance and capital allocations of diversified firms," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 395-409.
    3. Billett, Matthew T. & Garfinkel, Jon A. & Jiang, Yi, 2011. "The influence of governance on investment: Evidence from a hazard model," Journal of Financial Economics, Elsevier, vol. 102(3), pages 643-670.
    4. Jian, Ming & Lee, Kin Wai, 2011. "Does CEO reputation matter for capital investments?," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 929-946, September.
    5. repec:eee:reveco:v:55:y:2018:i:c:p:37-53 is not listed on IDEAS

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