Journal of Investment Strategies

Risk.net

Corporate equity performance and changes in firm characteristics

Brian Blank and Cole McLemore

  • Analysis of corporate equity performance and changes in firm characteristics contributes to the understanding of stock returns by confirming the importance of profitability, size, liquidity, momentum, and market returns.
  • We find minimal evidence of the importance of investment in capital expenditures for stock returns.
  • Industry analysis reveals the cyclical nature of business equipment and consumer durables industries in contrast to the utilities and energy sectors.

While prior equity performance research analyzes portfolio characteristics using multifactor models, portfolio groups are typically used to explain average returns. Instead, we explore annual firm-level data and compare this with annual percentage changes in firm characteristics, emphasizing model predictive power and individual variation. Our analyses show a significant link between individual firm equity returns and percentage changes in total assets, book-to-market ratios, current ratios and shares outstanding, as well as historical returns and average market returns. Our findings affirm prior work illustrating the importance of profitability, size, liquidity, momentum and market returns, although we observe minimal evidence of the importance of investment in capital expenditures. We also perform these analyses at the industry level and note differences across industries, including the cyclical nature of the business equipment and consumer durables industries in contrast to the utilities and energy sectors. Overall, we contribute to the understanding of corporate characteristics and equity performance.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: