Volatility of Corporate Debt Financing and Cross-Section of Stock Returns : Empirical Analysis of Financial Constraint Puzzle in Korea

2017 ◽  
Vol 25 (1) ◽  
pp. 97-138
Author(s):  
Heonsoo Kim ◽  
Byung-Uk Chong ◽  
In-Deok Hwang
Keyword(s):  
Stock Returns ◽  
Empirical Analysis ◽  
Debt Financing ◽  
Size Factor ◽  
Financial Constraint ◽  
Firm Characteristics ◽  
Cross Sectional ◽  
Listed Firms ◽  
Book To Market Ratio ◽  
Negative Impacts

This paper investigates the effects of the volatility of debt financing on cross-sectional variation of stock returns. Through the empirical analysis of listed firms in Korea for the 2005-2016 estimation period, this paper provides persistent and significant evidence that the volatility of debt financing has negative impacts on stock returns while controlling for market factor and firm characteristics such as size factor (firm size, market capitalization), value factor (book-to-market ratio), and momentum factor. While using both monthly average of stock returns and Fama-French-Carhart 4-factor risk-adjusted stock returns as dependent variables, the estimations of Fama-MacBeth cross-sectional regressions produce negative and statistically significant coefficient on the volatility of debt financing. The findings of this paper makes an academic contribution by providing the evidence that the volatility of debt financing, as a measure of financial constraint, plays a role as an anomaly factor for “financial constraint pricing puzzle” in Korean stock market.

Asset growth and the cross-section of stock returns: evidence from Greek listed firms

2017 ◽  
Vol 55 (5) ◽  
pp. 826-841 ◽  
Author(s):  
Georgios Constantinou ◽  
Angeliki Karali ◽  
Georgios Papanastasopoulos
Keyword(s):  
Stock Returns ◽  
Emerging Market ◽  
Balance Sheet ◽  
Firm Level ◽  
Cross Sectional ◽  
Content Type ◽  
Listed Firms ◽  
Asset Growth ◽  
Book To Market Ratio ◽  
Investment Growth

Purpose The purpose of this paper is to examine whether firm-level asset investment effects in returns found for US firms occur within the Greek stock market. Design/methodology/approach The paper utilizes portfolio-level tests and cross-sectional regressions. Findings The authors find that growth in total assets is strongly negatively related to future stock returns of Greek firms. In fact, the relation remains statistically significant, even when the authors control for other strong predictors of future returns (i.e. market capitalization and book-to-market ratio). Furthermore, the authors find that a hedge trading strategy on asset growth rate consisting of a long (short) position in firms with low (high) balance sheet growth generates positive returns, confirming that investment growth has significant predictive power for future returns of Greek listed firms. Originality/value The paper adds to the literature on the generalization of asset pricing regularities attributable to accounting figures in an emerging market.

Firm Characteristics, Cross-Sectional Regression Estimates, and Asset Pricing Tests

2019 ◽  
Vol 10 (2) ◽  
pp. 290-334 ◽  
Author(s):  
Chris Kirby
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Nonlinear Effects ◽  
Firm Characteristics ◽  
Pricing Models ◽  
Cross Sectional ◽  
Portfolio Returns ◽  
Asset Pricing Models ◽  
Formidable Challenge ◽  
Expected Stock Returns

Abstract I test a number of well-known asset pricing models using regression-based managed portfolios that capture nonlinearity in the cross-sectional relation between firm characteristics and expected stock returns. Although the average portfolio returns point to substantial nonlinearity in the data, none of the asset pricing models successfully explain the estimated nonlinear effects. Indeed, the estimated expected returns produced by the models display almost no variation across portfolios. Because the tests soundly reject every model considered, it is apparent that nonlinearity in the relation between firm characteristics and expected stock returns poses a formidable challenge to asset pricing theory. (JEL G12, C58)

scholarly journals Firm-level immunity to COVID-19 induced uncertainty

2020 ◽  
Author(s):  
Sahil Narang ◽  
Savita Rawat ◽  
Rudra Prakash Pradhan
Keyword(s):  
Stock Market ◽  
Market Reaction ◽  
Univariate Analysis ◽  
Recovery Period ◽  
Firm Characteristics ◽  
Firm Level ◽  
Cross Sectional ◽  
Stock Market Reaction ◽  
Book To Market Ratio ◽  
High Beta

Abstract The paper investigates the stock market response to COVID-19 induced financial uncertainty and the role of pre-shock firm-specific characteristics in shaping such stock market behaviour using a sample of S&P BSE 500 companies. Initially, the stock market experiences a significant downfall due to COVID-19 induced uncertainty; although, the market appears to rebound after a major setback. Downfall and recovery are quite surprising as downfall happened when cases were extremely small in number and there was no nation-wide lockdown announcement yet. Recovery happened when strict lockdowns were enforced and cases were rising significantly. Stock market reaction were heterogeneous among industries and various firm characteristics. On closer analysis, we find that some firms are more resilient to COVID-19 shock than others. Our analysis reveals that the most affected were small-sized, high beta, loser, and low-profitability firms as indicated by univariate analysis. The multivariate analysis finds momentum, profitability, beta, market capitalization, age, and book-to-market ratio to be the major determinants of cross-sectional CARs during downfall & recovery period. The study provides evidence of the negative reaction to COVID-19 induced uncertainty and subsequent recovery. We concludes that pre-COVID firm-specific factors play an essential role in explaining the variation in the stock market reaction to COVID-19 induced uncertainty.

A Bound on Expected Stock Returns

2019 ◽  
Vol 33 (4) ◽  
pp. 1565-1617 ◽  
Author(s):  
Ohad Kadan ◽  
Xiaoxiao Tang
Keyword(s):  
Lower Bound ◽  
Stock Returns ◽  
Expected Returns ◽  
Sufficient Condition ◽  
Cross Sectional ◽  
Oxford University ◽  
Expected Stock Returns ◽  
Book To Market Ratio ◽  
Published Paper ◽  
Frequency Basis

Abstract We present a sufficient condition under which the prices of options written on a particular stock can be aggregated to calculate a lower bound on the expected returns of that stock. The sufficient condition imposes a restriction on a combination of the stock’s systematic and idiosyncratic risk. The lower bound is forward-looking and can be calculated on a high-frequency basis. We estimate the bound empirically and study its cross-sectional properties. We find that the bound increases with beta and book-to-market ratio and decreases with size and momentum. The bound provides an economically meaningful signal about future stock returns. (JEL G11, G12) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Determinants of Corporate Environment, Social and Governance (ESG) Reporting among Asian Firms

2021 ◽  
Vol 14 (4) ◽  
pp. 167
Author(s):  
Rashidah Abdul Rahman ◽  
Maha Faisal Alsayegh
Keyword(s):  
Economic Performance ◽  
International Market ◽  
Firm Characteristics ◽  
Legitimacy Theory ◽  
Corporate Environment ◽  
Cross Sectional ◽  
Listed Firms ◽  
Western Countries ◽  
Sectional Model

Departing from previous studies, which have mostly focused on Western countries, our work investigates the determinants of the corporate environment, social and governance (ESG) reporting among Asian firms. Examining Asian public listed firms from 2005 to 2017, our cross-sectional model results indicate that firm characteristics (economic performance, profitability, leverage and size) are found to disclose additional ESG information. The outcome is consistent with the legitimacy theory, which posits that firms provide higher ESG reporting to legitimize and justify the firm’s continuous existence. The findings are important for firms, stakeholders and policymakers. While firms may formulate ways to improve ESG reporting to compete in the international market, the stakeholders may pressure firms to disclose more information on ESG and policymakers to designalegal framework on ESG that suits firms in Asia.

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