TY  - UNPD
A1  - Kraft, Holger
A1  - Schwartz, Eduardo S.
A1  - Weiss, Farina
T1  - Growth options and firm valuation
T2  - SAFE working paper series ; No. 6
N2  - This paper studies the relation between firm value and a firm's growth options. We find strong empirical evidence that (average) Tobin's Q increases with firm-level volatility. However, the significance mainly comes from R&D firms, which have more growth options than non-R&D firms. By decomposing firm-level volatility into its systematic and unsystematic part, we also document that only idiosyncratic volatility (ivol) has a significant effect on valuation. Second, we analyze the relation of stock returns to realized contemporaneous idiosyncratic volatility and R&D expenses. Single sorting according to the size of idiosyncratic volatility, we only find a significant ivol anomaly for non-R&D portfolios, whereas in a four-factor model the portfolio alphas of R&D portfolios are all positive. Double sorting on idiosyncratic volatility and R&D expenses also reveals these differences between R&D and non-R&D firms. To simultaneously control for several explanatory variables, we also run panel regressions of portfolio alphas which confirm the relative importance of idiosyncratic volatility that is amplified by R&D expenses.
T3  - SAFE working paper - 6 
KW  - Firm valuation
KW  - Real options
KW  - Volatility
KW  - R&D expenses
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29376
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-293768
UR  - http://ssrn.com/abstract=2224014
IS  - Version: 5 Februar 2013
PB  - Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE
CY  - Frankfurt am Main
ER  -