Do Financially Constrained Firms Earn Higher Returns than the Unconstrained Firms? A Comprehensive Evidence from Pakistan Stock Exchange

2020 ◽  
Keyword(s):  
Time Series ◽  
Asset Pricing ◽  
Capital Structure ◽  
Stock Returns ◽  
Financial Constraints ◽  
Stock Exchange ◽  
Cash Flows ◽  
Total Asset ◽  
Cash Holding ◽  
The Relationship

This paper examines the relationship between financial constraints and the stock returns explaining the pricing of stock through financially constrained and unconstrained firms in Pakistan. Three proxies; total assets, tangible to total assets and cash holding to total assets ratios) have been used for financial constraints and the study tried to investigate that either the investors are compensated for taking the extra risk or not in Pakistan Stock Exchange (PSX). We find that the financially constrained firms don’t earn higher returns when their capital structure is heavy with liquid assets and their cash flows are more than the unconstrained firms in PSX. Moreover, the time series results showed that the risk-adjusted returns of the most constrained firms give the mix and somewhat negative and significant and insignificant results for the Pakistani firms listed in PSX sorted based on tangible to total assets and Cash holding to total asset ratios. Keywords: Asset Pricing, Financial constraints, risk-adjusted performance of portfolios

scholarly journals The Relationship between Systematic Risk and Stock Returns in Tehran Stock Exchange Using the Capital Asset Pricing Model (CAPM)

2014 ◽  
Vol 21 ◽  
pp. 26-35
Author(s):  
Mohsen Mehrara ◽  
Zabihallah Falahati ◽  
Nazi Heydari Zahiri
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
The Relationship

One of the most important issues in the capital market is awareness of the level Risk of Companies, especially “systemic risk (unavoidable risk)” that could affect stock returns, and can play a significant role in decision-making. The present study examines the relationship between stock returns and systematic risk based on capital asset pricing model (CAPM) in Tehran Stock Exchange. The sample search includes panel data for 50 top companies of Tehran Stock Exchange over a five year period from 1387 to 1392. The results show that the relationship between systematic risk and stock returns are statistically significant. Moreover, the nonlinear (quadratic) function outperforms the linear one explaining the relationship between systematic risk and stock returns. It means that the assumption of linearity between systematic risk and stock returns is rejected in the Tehran Stock Exchange. So we can say that the capital asset pricing model in the sample is rejected and doesn’t exist linear relationship between systematic risk and stock returns in the sample.

scholarly journals The Relationship Between of Cash Flows (Financing, Investment and Operating) and Stock Prices, Size of the Firms

2020 ◽  
Vol 11 (5) ◽  
pp. 424
Author(s):  
Tamer Bahjat Sabri ◽  
Khalid Mohammad Hasan Sweis ◽  
Issam Naim Mahammad Ayyash ◽  
Yasmeen Faheem Asaad Qalalwi ◽  
Israa Sami Abbas Abdullah
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Null Hypothesis ◽  
Stock Exchange ◽  
Statistical Significance ◽  
Nonparametric Test ◽  
Cash Flows ◽  
The Other ◽  
Significant Difference ◽  
The Relationship

This study sought to test the relationship between cash flows from operating activities, investment activities and financial activities and on one hand and stock returns and the volume of assets on the companies listed in Palestine Stock Exchange on the other hand. The study incorporated 24 companies in 2018 and the required data were obtained through the financial statements. To test the hypotheses of the study, the Mann-Whitny U Test was used, a nonparametric test. Also the Kolmogorov-Smirnov was done. The findings demonstrated that the value of the Whitny U Test was (-3.291) Z with a statistical significance at 1%. Based on this, the null hypothesis was rejected and the alternative one, stating that there is a statistically significant difference between the operating flows of companies with low assets and those companies with high assets, was accepted. However, the other null hypothesis was accepted. The study recommended that companies and investors should take into consideration cash flows when taking an investment decision in Palestine Stock Exchange.

Cash and Financial Constraints: An Empirical Analysis of Non-Financial Firms Listed in Indonesian Stock Exchange 2005-2014

2016 ◽  
Vol 1 (1) ◽  
Author(s):  
Sigit S. Wibowo ◽  
Stefany Lolyta
Keyword(s):  
Financial Constraints ◽  
Stock Exchange ◽  
Cash Holdings ◽  
Cash Flows ◽  
Cash Holding ◽  
External Financing ◽  
Dividend Payment ◽  
Public Firms ◽  
Financial Firms ◽  
Strong Motivation

This study examines corporate motives to hold cash and its equivalents as forms of financing, by using non-financial public firms listed in Indonesian Stock Exchange (IDX) between 2005 and 2014. Three criteria are employed to distinguish constrained and non-constrained firms namely: KZ index, dividend payment, and firm size. Based on the results of PLS, this study finds that the amount of cash holding is increasing along with the increase of cash flows. This result is consistent for both firm categories based on the previous criteria. However, based on the 2SLS method, cash flow does not affect the cash holdings of the firms with financial constraints. The result of this research shows that firms with financial constraints have strong motivation to hold cash due to lack of access to external financing.

scholarly journals Relationship Between Capital Structure and Stock Returns of Jordanian Commercial Banks

2020 ◽  
Vol 13 (2) ◽  
pp. 100
Author(s):  
Sufian Radwan Al-Manaseer
Keyword(s):  
Capital Structure ◽  
Stock Returns ◽  
Firm Size ◽  
Commercial Banks ◽  
Negative Impact ◽  
Positive Impact ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
The Impact ◽  
The Relationship

This study aims to analyze the relationship between capital structure and stock returns of Jordanian banks listed on the Amman Stock Exchange from 2009 to 2018. The study sample is composed of 13 commercial banks in Jordan. The e-views program is used to conduct the statistical analysis of study variables. Initially, a simple linear regression analysis is conducted to determine the impact of capital structure as measured by financial leverage on stock returns and vice versa. Then, several control variables are added: growth in assets, liquidity, firm size, and profitability. This study has found that growth, capital structure, and profitability have a positive impact on stock returns. By contrast, liquidity and firm size have a negative impact on stock returns. Stock returns and firm size have a positive impact on capital structure, whereas liquidity, growth, and profitability have a negative impact on capital structure.

scholarly journals New Methods for the Cross-Section of Returns

2020 ◽  
Vol 33 (5) ◽  
pp. 1879-1890 ◽  
Author(s):  
G Andrew Karolyi ◽  
Stijn Van Nieuwerburgh
Keyword(s):  
Time Series ◽  
Asset Pricing ◽  
Stock Returns ◽  
Cross Section ◽  
Cash Flows ◽  
Machine Learning Techniques ◽  
Empirical Literature ◽  
New Era ◽  
The Cross ◽  
Future Work

Abstract The cross-section and time series of stock returns contains a wealth of information about the stochastic discount factor (SDF), the object that links cash flows to prices. A large empirical literature has uncovered many candidate factors—many more than seem plausible—to summarize the SDF. This special volume of the Review of Financial Studies presents recent advances in extracting information from both the cross-section and the time series, in dealing with issues of replication and false discoveries, and in applying innovative machine-learning techniques to identify the most relevant asset pricing factors. Our editorial summarizes what we learn and offers a few suggestions to guide future work in this exciting new era of big data and empirical asset pricing.

Corporate Risk Management, Firms’ Characteristics and Capital Structure: Evidence from Bombay Stock Exchange (BSE) Sensex Companies

2018 ◽  
Vol 22 (4) ◽  
pp. 395-404
Author(s):  
Himanshu Joshi
Keyword(s):  
Risk Management ◽  
Capital Structure ◽  
Management Practices ◽  
Stock Exchange ◽  
Cash Flows ◽  
Equity Capital ◽  
Management Programme ◽  
Total Risk ◽  
Risk Management Programme ◽  
The Relationship

The current article takes account of the existing status of risk management practices of the Indian publicly listed companies and establishes the relationship of their risk management programme with the firms’ financial characteristics such as capital structure, assets’ size, asset tangibility, profitability and valuation multiples. To establish the relationship, a risk management score is constructed using publicly disclosed information for Bombay Stock Exchange (BSE) Sensex 30 companies. Results suggest that companies with more comprehensive risk management programmes are likely to enjoy lower costs of debt and have a higher propensity to invest in intangible assets. These firms with more comprehensive risk management programmes also demonstrate more stable cash flows, sales and net operating profit. It is also evident that firms that are deeply indulged in risk management activities are likely to have higher financial leverage as higher leverage increases a firm’s total risk, and their risk management activities act to balance that risk. Consequently, firms with extensive risk management activities can endure higher debt in their capital structure; hence, a risk management programme works as a substitute of equity capital.

scholarly journals The Relationship between Cash Flows and Stock Returns: An Empirical Study of Financial Investment Banks on the Khartoum Stock of Exchange

2017 ◽  
Vol 3 (2) ◽  
pp. 14
Author(s):  
Sayed Abbas Bala
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Cash Flows ◽  
Investment Banks ◽  
Financial Investment ◽  
Investment And Financing ◽  
Important Quality ◽  
Statement Of Cash Flows ◽  
And Function ◽  
The Relationship

This study aims to test the relationship between cash flows from operational, investment, and financing activities individually and jointly, and the stock returns of financial investment Banks on the Khartoum stock exchange. Using an analytical approach, the study analyzes the financial statements for 2010-2015. The statistical analysis showed no statistically significant relationship between cash flows from operations, investment, and financing activities individually or jointly, and stock returns of financial investment Banks on the Khartoum Stock Exchange. This study yielded several recommendations such as that the statement of cash flows requires a special awareness because it provides important, quality information that reflects the ability of the firm to meet obligations and function as a going concern, which is useful for users in making decisions.

scholarly journals Two-Pass Model of CAPM: Evidence from Pakistan Stock Exchange

2020 ◽  
Vol 12 (2) ◽  
pp. 125-144
Author(s):  
Ruqia Shaikh ◽  
Sarfaraz Ahmed Shaikh ◽  
Muhammad Usman
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Stock Exchange ◽  
Idiosyncratic Risk ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
The Relationship

This research study analyzes the variation in monthly returns of securities for companies listed in Pakistan Stock Exchange-PSX (Formerly known as KSE). The Capital Asset Pricing Model (CAPM) of SLB has provided a method for researchers and experts to forecast the risks and returns. The main purpose of CAPM is to estimate beta of security to explain how much security is aligned or sensitive with the movement or changes in the market return. The research is conducted by means of monthly market capitalization of companies; portfolios are formed and the role of idiosyncratic risk in explaining the variations in the stock returns have been studied. With the same portfolios, the relationship of risk and return relationship has also been analyzed. This empirical analysis is conducted for the period of May 2010 - April 2014. Data analysis reveal that the idiosyncratic risk is a significant factor in explaining the stock returns. Capital Asset Pricing model is rejected in this study context because of positive and significant intercept in all portfolios. The research findings strongly support Chan and Chui (1996) and Strong and Xu (1997), assertions that the relationship between beta and security returns is weak. Therefore, CAPM is an empirically anemic model to be used in the Pakistani market.  

scholarly journals INDUSTRY CONCENTRATION AND THE CROSS-SECTION OF STOCK RETURNS: EVIDENCE FROM THE UK

2015 ◽  
Vol 16 (4) ◽  
pp. 769-785 ◽  
Author(s):  
Nawar Hashem ◽  
Larry Su
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Financial Market ◽  
Stock Exchange ◽  
Market Competition ◽  
Growth Effect ◽  
Industry Concentration ◽  
The Us ◽  
The Uk ◽  
The Relationship

In this paper, we examine the relationship between market structure and ex- pected stock returns in the London Stock Exchange during 1985 and 2010. Using Fama- MacBeth regressions, we find that industry concentration is negatively related to average stock returns, even after controlling for beta, size, book-to-market equity, momentum, and leverage. In addition, there is a strong evidence of a growth effect. Firms or industry portfolios with smaller book-to-market ratios have significantly higher returns. In contrast, beta is never statistically significant. The above results are robust to firm- and industry- level regressions, and the formation of firms into 100 size-beta portfolios. Our findings indicate that competitive industries earn, on average, higher risk-adjusted returns than concentrated industries. An explanation is that investors in more competitive industries require larger premiums for greater distress risks associated with these industries. Our paper is one of the first to link market competition with the average stock returns in the UK, and contributes to the asset pricing literature by extending the evidence from the US to another important financial market.

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