The Association Between Investment Opportunity Set Proxies and Realized Growth

Sanjay Kallapur and Mark A. Trombley

Journal of Business Finance & Accounting, 1999, vol. 26, issue 3‐4, 505-519

Abstract: Realized growth can be viewed as a proxy for the unobservable investment opportunity set (IOS) of the firm, and provides a benchmark against which IOS proxy variables can be compared. Results from such a comparison indicate that many of the variables from earlier studies, including book‐to‐market measures and capital expenditure to assets ratios are consistently correlated with subsequently realized growth. However, R&D intensity and E/P ratios do not exhibit any consistent association with subsequent growth indicating that they may not be valid IOS proxies.

Date: 1999
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