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Investment Opportunities, Free Cash Flow and Stock Valuation Effects of Corporate Investments: The Case of Taiwanese Investments in China

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  • Chen, Sheng-Syan
  • Chung, Tsai-Yen
  • Chung, Ly-Inn

Abstract

This paper examines the importance of investment opportunities and free cash flow in assessing the stock market reaction to announcements of cross-border investments in China by Taiwanese firms. Our results support the investment opportunities hypothesis that Taiwanese firms with favorable investment opportunities have significantly positive response to the announcements of their investments in China whereas firms with poor investment opportunities have negative response to such announcements. In contrast, we find no support for the free cash flow hypothesis. Our findings add to the understanding of the determinants of the wealth effect of cross-border investment decisions in the Asia-Pacific region. Copyright 2001 by Kluwer Academic Publishers

Suggested Citation

  • Chen, Sheng-Syan & Chung, Tsai-Yen & Chung, Ly-Inn, 2001. "Investment Opportunities, Free Cash Flow and Stock Valuation Effects of Corporate Investments: The Case of Taiwanese Investments in China," Review of Quantitative Finance and Accounting, Springer, vol. 16(4), pages 299-310, June.
    • Handle: RePEc:kap:rqfnac:v:16:y:2001:i:4:p:299-310
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    Cited by:

    1. Claudiu Tiberiu Albulescu, 2020. "Investment Behaviour and Firms’ Financial Performance: A Comparative Analysis Using Firm-Level Data from the Wine Industry," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 9(1), pages 75-94.
    2. William Mingyan Cheung & Li Jiang, 2016. "Does free cash flow problem contribute to excess stock return synchronicity?," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 123-140, January.
    3. Zhang, Dayong & Cao, Hong & Dickinson, David G. & Kutan, Ali M., 2016. "Free cash flows and overinvestment: Further evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 58(C), pages 116-124.
    4. William Cheung & Li Jiang, 2016. "Does free cash flow problem contribute to excess stock return synchronicity?," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 123-140, January.
    5. Parmjit Kaur & Randeep Kaur, 2019. "Effects of Strategic Investment Decisions on Value of Firm: Evidence from India," Paradigm, , vol. 23(1), pages 1-19, June.

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