Asset Tangibility, Industry Representation and the Cross Section of Equity Returns

25 Pages Posted: 14 Aug 2010  

Paul Docherty

University of Newcastle (Australia)

H. Chan

The University of Melbourne - Department of Finance; Monash University - Department of Accounting

Stephen Andrew Easton

University of Newcastle

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2010

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.

Keywords: Tangibility of assets, cross-section, industry, asset pricing

JEL Classification: G12, G14

Suggested Citation

Docherty, Paul and Chan, H. and Easton, Stephen Andrew, Asset Tangibility, Industry Representation and the Cross Section of Equity Returns (August 12, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1658230 or http://dx.doi.org/10.2139/ssrn.1658230

Paul Docherty (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

Howard Chan

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

The University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Stephen Andrew Easton

University of Newcastle ( email )

University Drive
Callaghan, nsw 2308
Australia

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