Investment and firm value: an analysis using panel data

Abstract

This study develops a model in order to study in depth the relationship between investment and firm value. This model is estimated by using panel data methodology, obtaining results for Spanish firms. These results indicate a direct but inversely proportional relationship between the volume of investment and firm value. 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. When investment opportunities are introduced into the analysis, results indicate that the creation of value is greater for those firms with valuable investment opportunities. Finally, our results corroborate the free cash flow theory, since there is a decrease in value for investing firms with a high level of free cash flow.

Pengungkapan Enterprise Risk Management dan Nilai Perusahaan: Peran Moderasi Umur dan Ukuran Perusahaan

“…Ketika suatu perusahaan telah memiliki reputasi yang baik, maka akan memperoleh kepercayaan publik, serta dapat menarik para investor untuk melakukan investasi di perusahaan tersebut. Investasi ini akan menyediakan modal bagi perusahaan untuk dapat menunjang proses pengembangan usaha guna meningkatkan nilai perusahaan (Brio et al, 2003), (Dushnitsky & Lenox, 2006), dan (Ehie & Olibe, 2010).…”

How Do Firm Characteristics Influence the Relationship between R&D and Firm Value?

“…According to Jensen's (1986) theory, firms with a high level of free cash flow (HFCF firms) tend to use these funds in negative NPV projects. Several studies about investment find support for Jensen's (1986) theory (Del Brio, Perote, and Pindado, 2003a; Del Brio, Miguel, and Pindado, 2003b) in that firms with a low (high) free cash flow level are expected to experience positive (negative) market reaction to investment announcements. However, there are other studies (Szewczyk, Tsetsekos, and Zantout, 1996; Chen and Ho, 1997) that do not find enough evidence to support this theory, although this lack of support may be due to the fact that the variable used in these studies for proxying free cash flow is a measure of cash flow instead of free cash flow.…”

Dynamic performance of Indonesian public companies: An analysis of financial decision behavior

“…Fama and Miller (1972) proposed that the market value of a firm is the discounted value of expected future cash flows from all its investment in the present and future; that is, an increase in capital expenditure will have a positive impact on a firm's market performance. Earlier on, Del Brio, De Miguel, and Pindado (2003) study on investment and firm value, the result suggests that the positive or negative market reactions to investment (divestment) announcement persist over time. This implies that the increase in firm value is greater for the firm with valuable investment opportunities and when firms divesting is a sign of decrease in value for the firms with valuable investment opportunities.…”