Information in Balance Sheets for Future Stock Returns: Evidence from Net Operating Assets

International Review of Financial Analysis, Vol. 20, pp. 269-282, 2011

Posted: 15 Oct 2006 Last revised: 18 Jul 2011

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; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Tao Wang

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

Date Written: June 20, 2011

Abstract

In this paper, we show that the negative relation of net operating assets (NOA) with future stock returns first documented by Hirshleifer et al. (2004) applies to both net working and investing pieces of NOA, while it is mostly driven by asset NOA components. Predictability of returns is significant only for their unexpected parts (unrelated to past sales growth) and not uniform across different industries. We also find that only high (low) NOA firms with asset expansion (contraction) and weak (strong) background of profitable investments exhibit negative (positive) abnormal returns. Our evidence suggests that the NOA anomaly may be present due to a combination of opportunistic earnings management and agency related overinvestment.

Keywords: Net operating assets (NOA), stock returns, opportunistic earnings management, overinvestment.

JEL Classification: M4

Suggested Citation

Papanastasopoulos, George A. and Thomakos, Dimitrios D. and Wang, Tao, Information in Balance Sheets for Future Stock Returns: Evidence from Net Operating Assets (June 20, 2011). International Review of Financial Analysis, Vol. 20, pp. 269-282, 2011. Available at SSRN: https://ssrn.com/abstract=937361

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/

University of Bologna - Rimini Center for Economic Analysis (RCEA)

Via Patara, 3
Rimini (RN), RN 47900
Italy

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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