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Information in balance sheets for future stock returns: Evidence from net operating assets

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  • Papanastasopoulos, Georgios
  • Thomakos, Dimitrios
  • Wang, Tao
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    Abstract

    In this paper, we show that the negative relation of net operating assets (NOA) with future stock returns first documented by Hirshleifer et al. (2004) applies to both net working and investing pieces of NOA, while it is mostly driven by asset NOA components. Predictability of returns is significant only for their unexpected parts (unrelated to past sales growth) and not uniform across different industries. We also find that only high (low) NOA firms with asset expansion (contraction) and weak (strong) background of profitable investments exhibit negative (positive) abnormal returns. Our evidence suggests that the NOA anomaly may be present due to a combination of opportunistic earnings management and agency related overinvestment.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 20 (2011)
    Issue (Month): 5 ()
    Pages: 269-282

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    Handle: RePEc:eee:finana:v:20:y:2011:i:5:p:269-282

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Net operating assets (NOA); Stock returns; Opportunistic earnings management; Overinvestment;

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    Cited by:
    1. Chrysovalantis Gaganis & Iftekhar Hasan & Fotios Pasiouras, 2013. "Efficiency and stock returns: evidence from the insurance industry," Journal of Productivity Analysis, Springer, Springer, vol. 40(3), pages 429-442, December.
    2. Dewandaru, Ginanjar & Masih, Rumi & Bacha, Obiyathulla & Masih, A. Mansur M., 2014. "Combining Momentum, Value, and Quality for the Islamic Equity Portfolio: Multi-style Rotation Strategies using Augmented Black Litterman Factor Model," MPRA Paper 56965, University Library of Munich, Germany.
    3. Imam, Shahed & Chan, Jacky & Shah, Syed Zulfiqar Ali, 2013. "Equity valuation models and target price accuracy in Europe: Evidence from equity reports," International Review of Financial Analysis, Elsevier, Elsevier, vol. 28(C), pages 9-19.

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