Abstract
I investigate why some firms expand by acquisitions or internal growth, other firms establish alliances, while other firms do not expand operations in response to industry shocks. Firm-specific misvaluation, firm size, institutional ownership, compensation schemes that incentivize risk taking, and lower cost of capital are positively associated with the decision to acquire assets. High level of free-cash flows is the main factor explaining why firms expand by internal growth. A high level of informational asymmetries is the main factor explaining why firms establish alliances. A high cost of capital is the differential factor of firms that do not expand operations.
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