Corporate Groups, Capital Investments and Stock Returns in Japan

University of Texas at Austin Working Paper

26 Pages Posted: 9 Jun 2003

See all articles by K.C. John Wei

K.C. John Wei

Hong Kong Polytechnic University

Feixue Xie

Southern Connecticut State University - Department of Economics and Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: December 18, 2002

Abstract

This paper presents evidence that suggests that in Japan, corporate ownership structure affects the relation between capital investment expenditures and firm performance. Specifically, there is a negative relation between capital expenditures and subsequent risk-adjusted returns amongst keiretsu firms, which have a strong banking relationship, but a positive relation amongst independent firms. There is no relation between these returns and financial constraints for keiretsu firms. However, the positive relation between capital investments and stock returns for independent firms is strongest for those firms that have the lowest cash flows, and are thus likely to be the most financially constrained.

Keywords: Capital expenditures, Stock returns, Corporate groups, Financial constraints

JEL Classification: G30, G31, G32, G34

Suggested Citation

Wei, Kuo-Chiang (John) and Xie, Feixue and Titman, Sheridan, Corporate Groups, Capital Investments and Stock Returns in Japan (December 18, 2002). University of Texas at Austin Working Paper. Available at SSRN: https://ssrn.com/abstract=402661 or http://dx.doi.org/10.2139/ssrn.402661

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Feixue Xie

Southern Connecticut State University - Department of Economics and Finance ( email )

New Haven, CT 06515
United States

Sheridan Titman (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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