Firm-specific attributes and capital gains overhang

Abstract

This paper investigates the key factors driving the capital gains overhang (hereafter CGO) in the US stock market. We used a sample of 3865 non-financial US companies with 331,023 observations from January 2001 through December 2020. The data is analyzed using a panel regression model. It contributes to the literature by using a new set of firm characteristics, namely, liquidity proxied by turnover, company beta, leverage, EPS, cash flow to price, market to book ratio, and size. This research is interesting as it provides an alternative to the behavioral finance point of view that serves only limited stylized facts. We find that CGO is increasing in some firm attributes, namely earnings per share, leverage, growth, and size, and decreasing in others, namely turnover, beta, and cash flow to price. Our results are robust to cross-sectional regression that checks the stability of estimates over time and to subsample analyses. Finally, our results remain the same even after accounting for endogeneity.