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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

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.

Suggested Citation

  • Papanastasopoulos, Georgios & Thomakos, Dimitrios & Wang, Tao, 2011. "Information in balance sheets for future stock returns: Evidence from net operating assets," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 269-282.
  • Handle: RePEc:eee:finana:v:20:y:2011:i:5:p:269-282 DOI: 10.1016/j.irfa.2011.06.001
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    Cited by:

    1. Dewandaru, Ginanjar & Masih, Rumi & Bacha, Obiyathulla Ismath & Masih, A. Mansur. M., 2015. "Combining momentum, value, and quality for the Islamic equity portfolio: Multi-style rotation strategies using augmented Black Litterman factor model," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 205-232.
    2. Chrysovalantis Gaganis & Iftekhar Hasan & Fotios Pasiouras, 2013. "Efficiency and stock returns: evidence from the insurance industry," Journal of Productivity Analysis, Springer, pages 429-442.
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    More about this item

    Keywords

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

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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