One of the great value managers, Seth Klarman of Baupost, puts it this way: " To T assume the investment opportunity sets
." that are available to you today are as good (or better) than those that will present themselves next week, next month, next quarter is naive, and you need to have cash to take advantage of those new investment opportunity sets
Investment measures are validated based on their correlations with investment opportunity sets, future realized growth, and contemporary employee turnover.
Gaver, 1993, "Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend and Compensation Policies," Journal of Accounting and Economics, 16, 125-140.
Third, we hypothesize that firms are likely to respond to changing investment opportunity sets by using both internal and external growth strategies.
We hypothesize that takeovers occurring within a takeover sequence happen because managers are responding to changes in their investment opportunity set. A firm begins a sequence subsequent to growth in its investment opportunity set and ends the sequence when this growth levels off.
Also the firms may have more growth options in their investment opportunity sets in future.
Gaver (1993) Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies.
This study is concerned with the appropriateness of modeling simplifications used to characterize banks' investment opportunity sets
and access to equity financing.
The current study provides up-to-date evidence concerning the relationship between the structure of executive compensation packages and firms' investment opportunity sets
by exploiting data that have recently become available as a result of new SEC requirements concerning executive compensation reporting in corporate proxy statements.
Cash holdings = f (firm size, financial strength, group membership, variance of cash flows, liability duration, organizational form, leverage, investment opportunity set
, non-invested assets, common stock holdings)