While numerous empirical studies include proxies for growth opportunities in their analyses, there is limited evidence as to the validity of the various growth proxies used. Based on a sample of 1,942 firm years for listed UK companies over the period 1990 to 2004, we assess the performance of eight growth opportunities measures. Our results show that while all the growth measures show some ability to predict growth in company sales, total assets or equity, there are substantial differences between the various models. In particular, Tobin's Q performs poorly while dividend based measures generally perform best. However, none of the measures has any success in predicting earnings per share growth, even when controlling for mean reversion and other time-series patterns in earnings. We term this the 'growth companies puzzle'. Growth companies do grow, but they do not grow in the key dimension (earnings) theory predicts. Whether the failure of 'growth companies' to deliver superior earnings growth is attributable to increased competition, poor investments, or behavioural biases, it is still a puzzle why growth companies on average fail to deliver superior earnings growth.

Although the impact of growth opportunities on company value has been recognised since Miller and Modigliani (1961), relatively little empirical work has been undertaken to value growth opportunities. In this paper we test the validity of the KBM model (Kester (1984) and Brealey and Myers (1981)) on a sample of 278 large UK companies for 1987-1995. Applying standard assumptions, we find the value of growth opportunities to account for a larger proportion of market values than assets-in-place.However, tests of the KBM model cast doubt on the credibility of these results and the validity of the model. The KBM model is highly sensitive to the inclusion of inflation in the risk free interest rate, and with a real interest rate (which on theoretical grounds is preferable), the model ceases to provide credible results. The model also fails to provide results consistent with expectations derived from option pricing theory regarding the relationship between the value of growth opportunities and the value of assets-in-place. These limitations of the KBM model indicate a need for a reappraisal of the method of measuring the value of growth opportunities. Measuring Growth Opportunities ABSTRACTAlthough the impact of growth opportunities on company value has been recognised

This paper examines the stock market reaction to 402 company investment announcements made by UK companies during the 1991-1996 period. The marketadjusted abnormal returns are generally positive but small. Investment announcements are classified according to functional categories, and we find the level of abnormal returns to vary according to the type of capital investment being announced. In particular, we find the market to react more favourably to investments which 'create' future investment opportunities, than to investments which can be categorised as 'exercising' investment opportunities. The market reaction also varies with firm size, with large companies tending to experience smaller responses to announcements than do smaller firms. Chung et al. (1998) reported that the quality of a company's investment opportunities is the primary determinant of market reactions to capital expenditure decisions. Our findings lend some support to a role for investment opportunities in market valuations. We also find project size to have a significant positive impact on the level of abnormal returns.2

Although the impact of growth opportunities on company value has been recognised since Miller and Modigliani (1961), relatively little empirical work has been undertaken to value growth opportunities. In this paper we test the validity of the KBM model (Kester (1984) and Brealey and Myers (1981)) on a sample of 278 large UK companies for 1987-1995. Applying standard assumptions, we find the value of growth opportunities to account for a larger proportion of market values than assets-in-place.However, tests of the KBM model cast doubt on the credibility of these results and the validity of the model. The KBM model is highly sensitive to the inclusion of inflation in the risk free interest rate, and with a real interest rate (which on theoretical grounds is preferable), the model ceases to provide credible results. The model also fails to provide results consistent with expectations derived from option pricing theory regarding the relationship between the value of growth opportunities and the value of assets-in-place. These limitations of the KBM model indicate a need for a reappraisal of the method of measuring the value of growth opportunities. Measuring Growth Opportunities ABSTRACTAlthough the impact of growth opportunities on company value has been recognised

A convenient practical method was developed for the preparation of enantiomerically pure (−)-(1S,2S)-5-norbornene-2-carboxylic acid, wherein the chiral auxiliary d-pantolactone was recovered efficiently.