Abstract
We propose abnormal fourth quarter capital expenditures as a proxy for managerial agency conflicts in investment decisions. In line with this interpretation, we document a negative link with future stock returns. Interestingly, the performance of the resulting zero-investment portfolio closely resembles the investment factor, which has become part of standard asset pricing models. Cross-sectional tests show that high cash flows, low dividend yields, and low debt levels aggravate the reported effect. Our analysis provides new evidence in support of an agency interpretation for the investment factor.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.