Investment and Firm Value: An Analysis Using Panel Data

Abstract

In this paper we develop a methodology complementing event studies in order to analyse the relationship between investment and firm value. The results of our model using panel data show a relationship between the two variables that is direct but inversely proportional. In addition, the empirical evidence shows that the creation of value persists over the long run, although no distinction is found between firms that announce their investments (divestments) and those that do not. Finally, we analyse value creation in relation to investment opportunities and free cash flow, providing in both cases additional evidence.

Keywords: Firm investment, Value creation, Panel data

JEL Classification: G31