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Asset Tangibility, Industry Representation and the Cross Section of Equity ReturnsPaul DochertyUniversity of Newcastle (Australia) H. ChanUniversity of Melbourne - Department of Finance; Financial Research Network (FIRN) Stephen Andrew EastonUniversity of Newcastle August 12, 2010 23rd Australasian Finance and Banking Conference 2010 Paper Abstract: Recent theory relates expected returns and covariant risk to the investment decisions of a firm. The irreversible nature of physical assets-in-place results in them being riskier than growth options across certain stages of the business cycle. Using the Australian accounting environment, this paper tests the relationship between asset tangibility and returns within the Fama and MacBeth (1973) framework. Asset tangibility is found to be priced in the cross-section of equity returns, and this relationship is most evident in the materials industry, which is characterised by irreversible, firm-specific assets. These results persist after controlling for the Fama and French (1992) factors.
Number of Pages in PDF File: 25 Keywords: Tangibility of assets, cross-section, industry, asset pricing JEL Classification: G12, G14 working papers seriesDate posted: August 14, 2010Suggested CitationContact Information
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