Value Contributions

Peter Chinloy and Matthew Imes

Chapter 70 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 2197-2236 from World Scientific Publishing Co. Pte. Ltd.

Abstract: When firms increase the size of their net balance sheet, they earn a higher return as value. Value is earned from different holdings. An examination of holdings compares which earn value. Holdings of US traded firms are divided into categories from their balance sheet. As reported on the asset side are cash, receivables, physicals, and intangibles. On the liability side, in order are payables, short- and long-term debt. In value, the sum of book equity is divided by market capitalization. For individual value, each is divided by market capitalization. Then, the return is regressed on the individual values and their interactions. Negative value is when increasing a holding reduces the return. Positive value comes from return increasing with a holding. The rank order of contributors to value, for US firms over 1980–2016, is(short-term debt),receivables,cash,(payables),(long-term debt),physicals,intangibles.Replacing holdings by their risk-weight adjustments and adding up, the resulting book to market has no effect on returns. Returns are fully priced by firms’ balance sheet holdings. The results potentially explain why value or overall book to market fails to outperform growth. Value is a return to holding certain risky holdings. Not all balance sheet holdings are risky.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811269943_0070 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811269943_0070 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811269943_0070

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().