Managerial discretion, net operating assets and the cross-section of stock returns: Evidence from European countries

Georgios Papanastasopoulos and Dimitrios Thomakos

Journal of International Financial Markets, Institutions and Money, 2017, vol. 47, issue C, 188-210

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 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443116301949
Full text for ScienceDirect subscribers only

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:eee:intfin:v:47:y:2017:i:c:p:188-210

DOI: 10.1016/j.intfin.2016.11.013

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().