Value Enhancing Capital Budgeting and Firm-Specific Stock Returns Variation

Posted: 17 Oct 2003

See all articles by Art Durnev

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Abstract

We document a robust cross-sectional positive association across industries between a measure of the economic efficiency of corporate investment and the magnitude of firm-specific variation in stock returns. This finding is interesting for two reasons, neither of which is a priori obvious. First, it adds further support to the view that firm-specific return variation gauges the extent to which information about the firm is quickly and accurately reflected in share prices. Second, it can be interpreted as evidence that more informative stock prices facilitate more efficient corporate investment.

JEL Classification: G14, M41, G31

Suggested Citation

Durnev, Artyom and Morck, Randall K. and Yeung, Bernard Yin, Value Enhancing Capital Budgeting and Firm-Specific Stock Returns Variation. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=438940

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Bernard Yin Yeung

National University of Singapore - Business School ( email )

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BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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