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Prediction Ability and Investment under Uncertainty

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Author Info
Katsuya Takii (Osaka School of International Public Plicy, Osaka University)

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Abstract

This paper provides a theoretical framework for analyzing one of the most important intangible assets in a firm: the ability to predict profitable investment opportunities. This paper shows theoretically how to measure the accuracy of information used to predict opportunities, and estimates the value of information in the context of a firm's investment decision problem. Empirical study confirms the theoretical results of the model: (1) prediction ability has a large positive impact on firm's expected profits; and (2) prediction ability increases the mean and the variance of the growth rate of a firm's capital stock.

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Paper provided by EconWPA in its series Industrial Organization with number 0406005.

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Date of creation: 06 Jun 2004
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Handle: RePEc:wpa:wuwpio:0406005

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jonathan Levin & Susan Athey, 2001. "The Value of Information in Monotone Decision Problems," Working Papers 01003, Stanford University, Department of Economics. [Downloadable!]
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  2. Ueda, Kazuo & Yoshikawa, Hiroshi, 1986. "Financial Volatility and the q Theory of Investment," Economica, London School of Economics and Political Science, vol. 53(29), pages 11-27, February. [Downloadable!] (restricted)
  3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02. [Downloadable!] (restricted)
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  6. O'Brien, James M, 1981. "Estimating the Information Value of Immediate Disclosure of the FOMC Policy Directive," Journal of Finance, American Finance Association, vol. 36(5), pages 1047-61, December. [Downloadable!] (restricted)
  7. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  8. Michael A. Salinger & Lawrence H. Summers, 1984. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study," NBER Working Papers 0757, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January. [Downloadable!] (restricted)
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  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  12. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 1999. "Investment behavior, observable expectations, and internal funds," Finance and Economics Discussion Series 1999-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  13. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
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  14. Katsuya Takii, 2000. "Prediction ability and investment under uncertainty," Economics Discussion Papers 518, University of Essex, Department of Economics.
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  15. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Katsuya Takii, 2004. "Entrepreneurial Efficiency: An Empirical Framework and Evidence," Macroeconomics 0411006, EconWPA. [Downloadable!]
  2. Bart Hobijn & Boyan Jovanovic, 2000. "The Information Technology Revolution and the Stock Market: Evidence," NBER Working Papers 7684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Katsuya Takii, 2003. "Prediction Ability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 80-98, January. [Downloadable!] (restricted)
    Other versions:
  4. Katsuya Takii, 2004. "Prediction Ability and Investment under Uncertainty," Industrial Organization 0406005, EconWPA. [Downloadable!]
    Other versions:
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