Fundamental Signals of Investment Profitability in the Global Water Industry
22 Pages Posted: 23 Dec 2013
Date Written: December 22, 2013
Abstract
We investigate the fundamental company variables that can serve as indicators of profitability of investment in global water company stocks. More specifically, we examine the relationship between eleven company variables and abnormal returns with regards to the twenty companies that comprise the World Water Index. The variables considered are revenues, sales and administration expenses, operating profit, earnings before interest and tax, accounts receivable, inventory, plant, property and equipment, goodwill and intangible assets, accounts payable, dividend paid and labor force. We apply panel data regression on data covering the period January 1, 2004 to December 31, 2011. Five fundamental variables can signal profitability of investment in the water industry: earnings before interest and taxes, accounts payable, labor force, and sales and administration expenses and accounts receivable. The first three variables are associated with negative returns while the other two variables are positively related to returns.
Keywords: World Water Index; abnormal returns; fundamental variables; profitability; panel data; water investments; water industry; accounting variables and investment; water funds
JEL Classification: M40, Q25
Suggested Citation: Suggested Citation