The growth companies puzzle: can growth opportunities measures predict firm growth?

While numerous empirical studies include proxies for growth opportunities in their analyses, there is limited evidence as to the validity of the various growth proxies used. Based on a sample of 1942 firm-years for listed UK companies over the 1990-2004 period, we assess the performance of eight growth opportunities measures. Our results show that while all the growth measures show some ability to predict growth in company sales, total assets, or equity, there are substantial differences between the various models. In particular, Tobin's Q performs poorly while dividend-based measures generally perform best. However, none of the measures has any success in predicting earnings per share growth, even when controlling for mean reversion and other time-series patterns in earnings. We term this the 'growth companies puzzle'. Growth companies do grow, but they do not grow in the key dimension (earnings) theory predicts. Whether the failure of 'growth companies' to deliver superior earnings growth is attributable to increased competition, poor investments, or behavioural biases, it is still a puzzle why growth companies on average fail to deliver superior earnings growth

Pricing real abandonment options on severval R&D investment projects

[[abstract]]Much previous research has shown that the R&D investments can be evaluated by real growth options approach. But few studies have been done on real abandonment options for R&D projects which may not succeed. The contribution of this paper is not only to derive a more general closed-form solution for evaluating real abandonment options, but to put backup project consideration into our model for reality. We show that both Black-Scholes’s and Stulz’s models are special cases of our model under some specifications of parameters. From the simulation results, we explore that the higher the percentage of recovering salvage value, the more investment projects should be carried out. We hope that the results in this study could provide a useful reference for the manager, to make better decisions regarding backup projects.[[notice]]補正完