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

Posted: 5 Feb 2012

See all articles by Paul Docherty

Paul Docherty

Monash University

H. Chan

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2011

Abstract

Recent theory relates expected returns and covariant risk to the investment decisions of a firm across certain stages of the business cycle. Using the Australian accounting environment that provides a wider scope for the capitalisation of intangible assets compared with the United States, this paper tests the relationship between asset tangibility and returns within the Fama and MacBeth (1973) framework. A relationship is found to exist between asset tangibility and the cross-section of equity returns. This relationship is most evident in the materials industry, which is characterised by irreversible, firm-specific assets. These results persist after controlling for firm characteristics that Fama and French (1992) show are related to returns, although the effect is largely driven by microcap stocks.

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

Suggested Citation

Docherty, Paul and Chan, Howard, Asset Tangibility, Industry Representation and the Cross Section of Equity Returns (April 8, 2011). Australian Journal of Management, Vol. 36, No. 1, 2011. Available at SSRN: https://ssrn.com/abstract=1998725

Paul Docherty (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Howard Chan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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