Abstract

http://ssrn.com/abstract=888324
 
 

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Corporate Investment and Value Creation


Wei Yang


Indiana University - Department of Finance

November 2005


Abstract:     
This study explores the value creation implications of corporate investment through future earnings. I develop parsimonious measures for the extent of a firm making too low or too high capital investment, controlling for investment opportunities. Using these measures, I document that both low- and high-investing firms subsequently realize poor earnings, controlling for profitability of existing assets. The evidence is consistent with suboptimal value creation following inefficient investment. The investment effect on future earnings persists for up to five years, suggesting that firms forgoing profitable opportunities continually give away sizable profits, while firms undertaking value-destroying projects fail to downscale or terminate at least some of them.

Number of Pages in PDF File: 52

Keywords: capital investment, investment inefficiency, earnings

JEL Classification: G31

working papers series


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Date posted: March 6, 2006  

Suggested Citation

Yang, Wei, Corporate Investment and Value Creation (November 2005). Available at SSRN: http://ssrn.com/abstract=888324 or http://dx.doi.org/10.2139/ssrn.888324

Contact Information

Wei Yang (Contact Author)
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
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