Investment Irreversibility, Cash Flow Risk, and Value‐Growth Stock Return Effects

Wikrom Prombutr, Larry Lockwood and J. David Diltz

The Financial Review, 2010, vol. 45, issue 2, 287-305

Abstract: We simulate results from a simple real options model to provide insight into the value‐growth stock return anomaly. In our model, firms possess either single (“value” firm) or multiple (“growth” firm) investment opportunities. Our model predicts that growth firms: (1) invest sooner, (2) exhibit greater continuity in capital expenditure over time, (3) have lower book‐to‐market ratios, and (4) generate lower rates of return than value firms.

Date: 2010
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https://doi.org/10.1111/j.1540-6288.2010.00248.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:45:y:2010:i:2:p:287-305

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