Investment plans and expected returns: insights from the life-cycle theory

• Autor(a) principal: Xavier, Gustavo Correia
• Data de Publicação: 2021
• Tipo de documento: Tese
• Idioma: eng
• Título da fonte: Biblioteca Digital de Teses e Dissertações da UFPB
• Texto Completo: https://repositorio.ufpb.br/jspui/handle/123456789/22517
• topic: Planos de investimento; Crescimento esperado do investimento; Previsão em cross-section; Ciclo de vida das empresas; Retorno acionário; Investment plans; Expected investment growth; Cross-section forecast; Firm life-cycle; Stock returns; CNPQ::CIENCIAS SOCIAIS APLICADAS::ADMINISTRACAO

This thesis aim to analyze how the expected investment growth, a measure of investment plans, relates to future returns at different life-cycle stages. In order to facilitate the achievement of this aim, I divide it into three studies. The first study (Chapter 1 of Part II) propose a novel measure of investment plans in the firm-level by using an approach based on text data and supervised machine learning. By combining the procedure of Han et al. (2020) with the idea of flexible dictionary of Lima, Godeiro and Mohsin (2020), I test a novel measure of investment plans based on text data from Management Discussion and Analysis disclosure in 10-K filings. In this study, the sample includes all US publicly traded firms in the period between January 1995 and December 2019. I build a unique dataset by merging information from multiple data sources. The annual firm-level financial and accounting data, I obtain from Compustat. The firms’ 10-K filings are from the SEC Edgar database and the monthly US stock returns from the Center for Research in Security Prices (CRSP). The main find of this chapter is that words matter to predict firm fundamentals, and can produce a more accurate measure of investment plans based only on public information at the time of the forecast by including data from MD&A. The second study (Chapter 2 of Part II) incorporate the life-cycle concept to contribute to our understand about the relation between investment plans and stock returns. The financial and accounting data I obtain from the merged CRSP and COMPUSTAT database. The financial firms, firms with negative book equity and, utility firms are excluded from the sample in this study. The period is between of 1962 and 2018 including only firms with CRSP share codes 10 and 11, that refer to ordinary common shares with no special status. The empirical results shows evidence against the assumptions of 1, which predicts that firms will decrease their investment plans as they become more mature. In opposite, the results, which may be a result of find a extrapolative expectations of the growth firms managers (GENNAIOLI; MA; SHLEIFER, 2016), since mature firms have smaller investment plans on average, but also smaller standard deviation. Despite the opposite evidence on 1, the results is in line others assumptions as proxies for life cycle can improve out-of-sample prediction of investment plans 1, the EIG premium of growth firms seems to be stronger than EIG premium of mature firms 2, and a portion of the EIG premium is explained by investor sentiment 2. Finally, in the third study (Chapter 3 of Part II) examine the role of life-cycle firms and market development in the relationship between a country’s aggregate investment plans and the wide stock market return by conducting an empirical research expanding actual evidence to international stock markets. For this study I perform individual time-series tests for each country, to analyze in which countries the effect is most likely to occur. The the international monthly stock data are from the Thomson Reuters Datastream, and accounting data are from the Worldscope database. The analyzed period varies from country to country and depends on data availability. The main results of this research is that the expected growth predictability is not exclusive to U.S market, and in emerging markets seems to be stronger, which imply that the rational risk explanation is not the most part of the predictability power of the aggregate expected growth investment.