Firm-Level Productivity, Risk, and Return

Ayse Imrohoroglu and Şelale Tüzel ()
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Şelale Tüzel: Department of Finance and Business Economics, Marshall School of Business, University of Southern California, Los Angeles, California 90089

Management Science, 2014, vol. 60, issue 8, 2073-2090

Abstract: This paper provides new evidence about the link between firm-level total factor productivity (TFP) and stock returns. We estimate firm-level TFP and show that it is strongly related to several firm characteristics such as size, the book-to-market ratio, investment, and hiring rate. Low productivity firms earn a significant premium over high productivity firms in the following year, and this premium is countercyclical. We show that a production-based asset pricing model calibrated to match the cross section of measured firm-level TFPs can replicate the empirical relationship between TFP, many firm characteristics, and stock returns. Our results offer an explanation as to how these firm characteristics rationally predict returns. This paper was accepted by Wei Jiang, finance.

Keywords: firm-level productivity; cross section of returns (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (34)

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http://dx.doi.org/10.1287/mnsc.2013.1852 (application/pdf)

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Working Paper: Firm Level Productivity, Risk, and Return (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:8:p:2073-2090

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