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dc.creatorKraft, Holger
dc.creatorSchwartz, Eduardo S.
dc.creatorWeiss, Farina
dc.date.accessioned2021-09-28T09:15:49Z
dc.date.available2021-09-28T09:15:49Z
dc.date.issued2013-11-01
dc.identifier.urihttps://fif.hebis.de/xmlui/handle/123456789/2107
dc.description.abstract"This paper studies the relation between firm value and a firm's growth options. We find strong empirical evidence that (average) Tobin's Q increases with firm-level volatility. The significance mainly comes from R&D firms, which have more growth options than non-R&D firms. By decomposing firm-level volatility into its systematic and unsystematic part, we document that only idiosyncratic volatility has a significant effect on valuation. Second, we analyze the relation of stock returns to realized contemporaneous idiosyncratic volatility and R&D expenses. Single sorting on idiosyncratic volatility yields a significant negative relation between portfolio alphas and contemporaneous idiosyncratic volatility for non-R&D portfolios, whereas in a four-factor model the portfolio alphas of R&D portfolios are all positive. Double sorting on idiosyncratic volatility and R&D expenses also reveals these differences between R&D and non-R&D firms. To control for several explanatory variables simultaneously, we also run panel regressions of firm-level alphas which confirm the relative importance of idiosyncratic volatility that is amplified by R&D expenses. Finally, we show that our results are robust to the definition of idiosyncratic volatility. We tease out the \true"" idiosyncratic volatilities by performing a principal-component analysis on the residuals of Fama-French regressions and find that our main results still hold for this alternative definition of idiosyncratic volatility."
dc.rightsAttribution-ShareAlike 4.0 International
dc.rights.urihttp://creativecommons.org/licenses/by-sa/4.0/
dc.subjectFinancial Markets
dc.subjectTransparency Lab
dc.titleGrowth Options and Firm Valuation
dc.typeWorking Paper
dcterms.referenceshttps://fif.hebis.de/xmlui/handle/123456789/1420?FRED
dcterms.referenceshttps://fif.hebis.de/xmlui/handle/123456789/1379?CRSP
dcterms.referenceshttps://fif.hebis.de/xmlui/handle/123456789/1376?Compustat
dc.source.filename6_SSRN-id2224014
dc.identifier.safeno6
dc.subject.keywordsfirm valuation
dc.subject.keywordsreal options
dc.subject.keywordsvolatility
dc.subject.keywordsr&d expenses
dc.subject.keywordspca
dc.subject.jelG12
dc.subject.topic1yield
dc.subject.topic1pay
dc.subject.topic1true
dc.subject.topic2option
dc.subject.topic2roa
dc.subject.topic2compustat
dc.subject.topic3study
dc.subject.topic3hodrick
dc.subject.topic3finally
dc.subject.topic1nameFinancial Markets
dc.subject.topic2nameCorporate Finance
dc.subject.topic3nameSaving and Borrowing
dc.identifier.doi10.2139/ssrn.2224014


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