Net Operating Assets as a Predictor of Industry Stock Returns

Accounting Conservatism, the Quality of Earnings, and Stock Returns

The Accounting Review ◽

10.2308/accr.2002.77.2.237 ◽

2002 ◽

Vol 77 (2) ◽

pp. 237-264 ◽

Cited By ~ 442

Author(s):

Stephen H. Penman ◽

Xiao-Jun Zhang

Keyword(s):

Stock Returns ◽

Joint Effect ◽

Accounting Conservatism ◽

Future Earnings ◽

Diagnostic Measures ◽

Conservative Accounting ◽

Future Return ◽

Net Operating Assets ◽

Reported Earnings

When a firm practices conservative accounting, changes in the amount of its investments can affect the quality of its earnings. Growth in investment reduces reported earnings and creates reserves. Reducing investment releases those reserves, increasing earnings. If the change in investment is temporary, then current earnings is temporarily depressed or inflated, and thus is not a good indicator of future earnings. This study develops diagnostic measures of this joint effect of investment and conservative accounting. We find that these measures forecast differences in future return on net operating assets relative to current return on net operating assets. Moreover, these measures also forecast stock returns—indicating that investors do not appreciate how conservatism and changes in investment combine to raise questions about the quality of reported earnings.

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

International Review of Financial Analysis ◽

10.1016/j.irfa.2011.06.001 ◽

2011 ◽

Vol 20 (5) ◽

pp. 269-282 ◽

Cited By ~ 4

Author(s):

Georgios Papanastasopoulos ◽

Dimitrios Thomakos ◽

Tao Wang

Keyword(s):

Stock Returns ◽

Balance Sheets ◽

Net Operating Assets

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Managerial discretion, net operating assets and the cross-section of stock returns: Evidence from European countries

Journal of International Financial Markets Institutions and Money ◽

10.1016/j.intfin.2016.11.013 ◽

2017 ◽

Vol 47 ◽

pp. 188-210 ◽

Cited By ~ 1

Author(s):

Georgios Papanastasopoulos ◽

Dimitrios Thomakos

Keyword(s):

Stock Returns ◽

Cross Section ◽

Managerial Discretion ◽

European Countries ◽

Net Operating Assets ◽

The Cross

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Freedom Indices and Capital Asset Pricing Model: Some Malaysian Evidence

International Journal of Management, Finance and Accounting ◽

10.33093/ijomfa.2020.1.1.1 ◽

2020 ◽

Vol 1 (1) ◽

pp. 1-21

Author(s):

Ying Tay Lee ◽

Devinaga Rasiah ◽

Ming Ming Lai

Keyword(s):

Human Rights ◽

Asset Pricing ◽

Stock Returns ◽

Firm Size ◽

Explanatory Power ◽

Least Square ◽

Press Freedom ◽

Capital Asset Pricing ◽

Capital Asset ◽

Cross Sectional

Human rights and fundamental freedoms such as economic, political, and press freedoms vary widely from country to country. It creates opportunity and risk in investment decisions. Thus, this study is carried out to examine if the explanatory power of the model for capital asset pricing could be improved when these human rights movement indices are included in the model. The sample for this study comprises of 495 stocks listed in Bursa Malaysia, covering the sampling period from 2003 to 2013. The model applied in this study employed the pooled ordinary least square regression estimation. In addition, the robustness of the model is tested by using firm size as a controlled variable. The findings show that market beta as well as the economic and press freedom indices could explain the cross-sectional stock returns of the Malaysian stock market. By controlling the firm size, it adds marginally to the explanation of the extended CAP model which incorporated economic, political, and press freedom indices.

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