Asset Tangibility, Industry Representation and the Cross Section of Equity Returns
25 Pages Posted: 14 Aug 2010
Date Written: August 12, 2010
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: Suggested Citation