Accounting-Based Estimates of the Cost of Capital: A Third Way

Penman, Stephen H.; Zhu, Jia

doi:10.2139/ssrn.3049245

Cited by 3 publications

(2 citation statements)

References 68 publications

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“…Sales growth, on the other hand, turns insignificant at the 90 percent level in the joint regression. The average adjusted R 2 is 3.86%, in line with existing studies (Lewellen, 2015; Penman & Zhu, 2017).…”

Section: Resultssupporting

confidence: 90%

Do risk exposures explain accounting anomalies? A new testing method

Peng

2022

Accounting & Finance

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I quantitatively evaluate how much of the cross‐sectional return predictive ability of a range of accounting anomalies can be attributed to firm‐specific stock return covariances with market risk factors. Using a novel two‐step regression‐based testing method, I find robust evidence that the risk factor exposures do not explain a meaningful fraction of the time‐series variations in the return predictive coefficients of the anomaly variables. Out‐of‐sample tests further confirm that it is the mispricing component of the accounting anomalies that is mainly responsible for the return predictability.

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Section: Resultssupporting

confidence: 90%

Do risk exposures explain accounting anomalies? A new testing method

Peng

2022

Accounting & Finance

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“…Many of these variables forecast the forward earnings yield and earnings growth, in the same direction in which these variables forecast returns. Penman and Zhu (2016) estimate costs of capital by projecting future returns on anomaly variables that are a priori connected to future earnings growth.…”

Section: The Prrt Modelmentioning

confidence: 99%

The Economics of Value Investing

Hou¹,

Chen

et al. 2017

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Growth Matters: Disclosure and Risk Premium

Ellahie¹,

Hayes²,

Plumlee³

2021

The Accounting Review

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Theoretical work generally predicts a negative association between disclosure and risk premium, where additional disclosure reduces estimation risk or information asymmetry. However, empirical studies frequently report mixed results. Recent theoretical studies suggest that the association between disclosure and risk premium is not necessarily always negative, and could be positive (or less negative). For example, Dutta and Nezlobin (2017) show that disclosure can be associated with higher risk premium when conditioned on firms' growth rates. Similarly, Johnstone (2016) shows that higher signal quality can lead to higher risk premium. Motivated by these studies, we re-examine the association between disclosure and risk premium, conditional on growth. Using various proxies for risk premium, disclosure, and growth, we provide robust evidence that while the unconditional association between disclosure and risk premium is ambiguous, the conditional association is negative for lower growth firms but is less negative (or positive) for higher growth firms.

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Accounting-Based Estimates of the Cost of Capital: A Third Way

Cited by 3 publications

References 68 publications

Do risk exposures explain accounting anomalies? A new testing method

Do risk exposures explain accounting anomalies? A new testing method

The Economics of Value Investing

Growth Matters: Disclosure and Risk Premium

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