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The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms

Published online by Cambridge University Press:  06 April 2009

Sheng-Syan Chen
Sheng-Syan Chen
Affiliation:
fnschen@mba.ntu.edu.tw, Department of Finance, College of Management, National Taiwan University, No. 85, Sec. 4, Roosevelt Rd., Taipei, Taiwan.
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Abstract

This paper examines the role of focus versus diversification in explaining the economic impact of corporate capital investments. I find that the stock market's responses to announcements of capital investments are more favorable for focused firms than for diversified firms. I also show that focused firms exhibit significantly better post-investment operating performance than diversified firms. The overall findings in this study suggest that the investment opportunities hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of capital investments on the investing firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 2 , June 2006 , pp. 341 - 355
Copyright
Copyright © School of Business Administration, University of Washington 2006

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