Rationalizing the Value Premium under Economic Fundamentals and Political Patronage
نویسندگان
چکیده
This paper studies the value anomaly in the context of Malaysia, an emerging economy with a top heavy, closely held, and state-owned institutional setting. We attribute the anomaly to the investment pattern of growth firms. Our empirical analysis illustrates that growth firms have a tendency to hoard cash, delaying the undertaking of their growth options, especially in poor economic environments. This mitigates their business risk, but lowers their market valuation, driving down their returns. Our hypothesis also reconciles the diverging views stemming from both the neoclassical and behavioural perspectives. JEL Classification: G110 (Portfolio Choice; Investment Decisions), G120 (Asset Pricing).
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