Investment and firm value: an analysis using panel data

This study develops a model in order to study in depth the relationship between investment and firm value. This model is estimated by using panel data methodology, obtaining results for Spanish firms. These results indicate a direct but inversely proportional relationship between the volume of investment and firm value. In addition, the empirical evidence shows that the creation of value persists over the long run, although no distinction is found between firms that announce their investments (divestments) and those that do not. When investment opportunities are introduced into the analysis, results indicate that the creation of value is greater for those firms with valuable investment opportunities. Finally, our results corroborate the free cash flow theory, since there is a decrease in value for investing firms with a high level of free cash flow.