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Information in Balance Sheets about Future Stock Returns: Evidence from Net Operating Assets

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Author Info
Georgios Papanastasopoulos
Dimitrios Thomakos
Tao Wang

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Abstract

This paper, builds on the work of Hirshleifer, Hou, Teoh and Zhang (Journal of Accounting and Economics, 38, 2004) on the NOA (net operating assets) anomaly. After controlling for current profitability, we find a strong negative relation of NOA with future stock returns. Moreover, the results indicate that this relation is driven from the asset side of NOA. We also find, that the hedge strategies on NOA and operating assets generate positive abnormal returns and constitute statistical arbitrage opportunities. Overall, our evidence on the sources of the NOA anomaly, suggests that it requires accounting distortions arising from earnings management.

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Publisher Info
Paper provided by University of Peloponnese, Department of Economics in its series Working Papers with number 0009.

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Length: 40 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:uop:wpaper:0009

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Related research
Keywords: Net operating assets (NOA); stock returns; earnings management; growth.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  2. Hogan, Steve & Jarrow, Robert & Teo, Melvyn & Warachka, Mitch, 2004. "Testing market efficiency using statistical arbitrage with applications to momentum and value strategies," Journal of Financial Economics, Elsevier, vol. 73(3), pages 525-565, September. [Downloadable!] (restricted)
  3. Konan Chan & Louis K. C. Chan & Narasimhan Jegadeesh & Josef Lakonishok, 2006. "Earnings Quality and Stock Returns," Journal of Business, University of Chicago Press, vol. 79(3), pages 1041-1082, May. [Downloadable!]
  4. Titman, Sheridan & Wei, K. C. John & Xie, Feixue, 2004. "Capital Investments and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(04), pages 677-700, December. [Downloadable!]
  5. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February. [Downloadable!] (restricted)
  6. Guay, W. & Kothari, S.P. & Watts, R.L., 1996. "A Market-Based Evaluation of Discretionary-Accrual Models," Papers 96-01, Rochester, Business - Financial Research and Policy Studies.
  7. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March. [Downloadable!] (restricted)
  8. Shumway, Tyler, 1997. " The Delisting Bias in CRSP Data," Journal of Finance, American Finance Association, vol. 52(1), pages 327-40, March. [Downloadable!] (restricted)
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