Corporate Financing Activities, Fundamentals to Price Ratios And the Cross Section of Stock Returns

Journal of Economic Studies, Vol. 40, pp. 493 - 514, 2013

Posted: 12 Jun 2013 Last revised: 18 Nov 2014

See all articles by George A. Papanastasopoulos

George A. Papanastasopoulos

University of Piraeus - Department of Business Administration

Dimitrios D. Thomakos

University of Peloponnese - School of Management, Economics and Informatics

Tao Wang

City University of New York (CUNY) - Department of Economics

Date Written: June 11, 2013

Abstract

The purpose of the paper is to provide new insights on the relation between the value/growth anomaly and the external financing anomaly by considering an expanded value/growth indicator: free cash flow yield (free cash flows scaled by price). In line with the literature on contrarian portfolios, we find that firms with low (high) free cash flow yield are experiencing low (high) returns. However, only when an investor buys (sells) stocks of firms with high (low) free cash flow yield that distribute (raise) capital, his zero-cost portfolio is significant. These findings are robust, irrespective of the financing vehicle (equity or debt). Overall, our evidence suggests that distinctions between the value/growth anomaly and the external financing anomaly partially disappear, if one is willing to employ free cash flow yield as a proxy of the former anomaly.

Keywords: free cash flow yield, external financing activities, stock returns

JEL Classification: G10, M4

Suggested Citation

Papanastasopoulos, George A. and Thomakos, Dimitrios D. and Wang, Tao, Corporate Financing Activities, Fundamentals to Price Ratios And the Cross Section of Stock Returns (June 11, 2013). Journal of Economic Studies, Vol. 40, pp. 493 - 514, 2013. Available at SSRN: https://ssrn.com/abstract=2277780

George A. Papanastasopoulos (Contact Author)

University of Piraeus - Department of Business Administration ( email )

80, KARAOLI & DIMITRIOU,PIRAEUS
Piraeus, 18534
Greece

Dimitrios D. Thomakos

University of Peloponnese - School of Management, Economics and Informatics ( email )

Department of Economics
22100 Tripolis
Greece
+30 2710 230139 (Fax)

HOME PAGE: http://es.uop.gr/

Tao Wang

City University of New York (CUNY) - Department of Economics ( email )

65-30 Kissena Blvd
Flushing, NY 11367-1597
United States

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