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

Georgios Papanastasopoulos, Dimitrios Thomakos and Tao Wang

No 9, Working Papers from University of Peloponnese, Department of Economics

Abstract: This paper, builds on the work of Hirshleifer, Hou, Teoh and Zhang (Journal of Accounting and Economics, 38, 2004) on the NOA (net operating assets) anomaly. After controlling for current profitability, we find a strong negative relation of NOA with future stock returns. Moreover, the results indicate that this relation is driven from the asset side of NOA. We also find, that the hedge strategies on NOA and operating assets generate positive abnormal returns and constitute statistical arbitrage opportunities. Overall, our evidence on the sources of the NOA anomaly, suggests that it requires accounting distortions arising from earnings management.

Keywords: Net operating assets (NOA); stock returns; earnings management; growth. (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007
New Economics Papers: this item is included in nep-acc
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