Investment Opportunities, Free Cash Flow and Stock Valuation Effects of Corporate Investments: The Case of Taiwanese Investments in China

Investment Opportunities, Free Cash Flow and Stock Valuation Effects of Corporate Investments:... This paper examines the importance of investment opportunities and free cash flow in assessing the stock market reaction to announcements of cross-border investments in China by Taiwanese firms. Our results support the investment opportunities hypothesis that Taiwanese firms with favorable investment opportunities have significantly positive response to the announcements of their investments in China whereas firms with poor investment opportunities have negative response to such announcements. In contrast, we find no support for the free cash flow hypothesis. Our findings add to the understanding of the determinants of the wealth effect of cross-border investment decisions in the Asia-Pacific region. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Investment Opportunities, Free Cash Flow and Stock Valuation Effects of Corporate Investments: The Case of Taiwanese Investments in China

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1011270824166
Publisher site
See Article on Publisher Site

Abstract

This paper examines the importance of investment opportunities and free cash flow in assessing the stock market reaction to announcements of cross-border investments in China by Taiwanese firms. Our results support the investment opportunities hypothesis that Taiwanese firms with favorable investment opportunities have significantly positive response to the announcements of their investments in China whereas firms with poor investment opportunities have negative response to such announcements. In contrast, we find no support for the free cash flow hypothesis. Our findings add to the understanding of the determinants of the wealth effect of cross-border investment decisions in the Asia-Pacific region.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 3, 2004

References

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