Managerial Discretion, Net Operating Assets and the Cross-Section of Stock Returns: Evidence from European Countries

Posted: 1 Dec 2016 Last revised: 4 Apr 2017

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

Date Written: November 29, 2016

Abstract

We show that firms with higher NOA (net operating assets) subsequently experience lower stock returns in at least nine out of sixteen European countries, consistent with the U.S. evidence. This negative relation between NOA and future returns is strongly linked with cross country variation in factors capturing managerial discretion. However, once we adjust for risk, the effect of NOA on stock returns is substantially attenuated and becomes significant only in three European countries. Overall, our findings suggest that optimal investment by executives in response to discount rate changes could be an underlying source of return predictability attributable to NOA in Europe.

Keywords: Net Operating Assets, Stock Returns, Managerial Discretion, European Equity Markets

JEL Classification: M4

Suggested Citation

Papanastasopoulos, George A. and Thomakos, Dimitrios D., Managerial Discretion, Net Operating Assets and the Cross-Section of Stock Returns: Evidence from European Countries (November 29, 2016). Journal of International Financial Markets, Institutions and Money, Vol.47, pp. 188-210, 2017. Available at SSRN: https://ssrn.com/abstract=2877355

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/

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