Article - Jones (Topic 2)

Question 1

According to Jones how are Growth Opportunities are realised?

Answer 1

through Capital Expenditure to create Assets-in-Place

Question 2

What was Jones investigating?

Answer 2

daily abnormal returns of various types of capital investment announcements

Question 3

What did Jones expect to see, assuming the market was efficient?

Answer 3

If such announcements are unanticipated by the equities market then small, positive abnormal returns are expected straight after the announcement, provided the market concurs that the investment has a positive NPV

Question 4

What actions are included in the create group?

Answer 4

R&D + Diversification

Question 5

What actions are included in the exercise group?

Answer 5

Asset Expenditure + Cost Reduction

Question 6

Which group displayed the higher abnormal returns?

Answer 6

the create group, exercise showed effectively zero abnormal returns as would be expected in an efficient market.

Question 7

in the create group did larger or smaller firms show the greatest abnormal returns?

Answer 7

smaller firms

Question 8

When do large firms experience less/ greater abnormal returns than small firms following announcements?

Answer 8

abnormal returns of product/market diversification expenditure benefit small firms more
for R&D expenditure, which also creates growth opportunities larger firms have the advantage