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We examined investment behavior in the Japanese manufacturing industry using investment revision data to analyze investment behavior from a fresh angle. We tested the martingale investment hypothesis and then the q-theory of investment by looking at the response of stock return and investment to...
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prices to cash ows and growth opportunities. Firms with more liquid stocks are expected to hold more cash, the opposite of … the prediction from a standard information asymmetry perspective on stock liquidity. The effect should be amplifed by … information asymmetry, inventory risks, and transaction costs …
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