TY  - JOUR
AU  - Titman,Sheridan
AU  - Wei,K.C. John
AU  - Xie,Feixue
TI  - Capital Investments and Stock Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9951
PY  - 2003
Y2  - September 2003
UR  - http://www.nber.org/papers/w9951
L1  - http://www.nber.org/papers/w9951.pdf
N1  - Author contact info:
Sheridan Titman
Finance Department
McCombs School of Business
University of Texas at Austin
Austin, TX 78712-1179
Tel: 512/232-2787
Fax: 512/471-5073
E-Mail: titman@mail.utexas.edu

Feixue Xie
E-Mail: fxie@utep.edu
AB  - Firms that substantially increase capital investments subsequently achieve negative benchmark-adjusted returns. The negative abnormal capital investment/return relation is shown to be stronger for firms that have greater investment discretion, i.e., firms with higher cash flows and lower debt ratios, and is shown to be significant only in time periods when hostile takeovers were less prevalent. These observations are consistent with the hypothesis that investors tend to underreact to the empire building implications of increased investment expenditures. Although firms that increase capital investments tend to have high past returns and often issue equity, the negative abnormal capital investment/return relation is independent of the previously documented long-term return reversal and secondary equity issue anomalies.
ER  -