Capital Investment, Earnings, and Annual Stock Returns: Causality Relationships In China
Tóm tắt
The Granger-causality effects between earnings, cash flow, and capital investment as well as on subsequent annual stock returns are examined for China in an international framework. Overall, there is a Granger causality relationship from earnings to capital investment. Furthermore, there is strong causality in the reverse direction as well. Capital investment causes positive subsequent stock returns while earnings have a more direct and contemporaneous impact on stock prices. Regulatory mechanisms, managerial monitoring, state capitalism controls work best during expansions and non-crisis periods. The causality relationships diminish during recessions and crisis periods, such as the Asian Crisis. The results observed in China are different from the results for G7 countries, or the results for other non-G7 countries. Using cash flows instead of earnings confirms the conclusions. Insider ownership is not necessarily as effective as other control mechanisms in China.
Tài liệu tham khảo
Alti, A., 2003. How sensitive is investment to cash flow when financing is frictionless? Journal of Finance, 58, pp.707–722.
Chen, H., Chong, T.T.L., and Li, Z., 2011. Are Chinese stock market cycles duration independent? The Financial Review, 46, pp.151–164.
Cleary, S., 1999. The relationship between firm investment and financial status. The Journal of Finance, 64, pp.673–692.
DeMarzo, P.M. and Fishman, M.J., 2007. Agency and optimal investment dynamics. Review of Financial Studies, 20, pp.151–188.
Dittmar, A., Mahrt-Smith, J., and Servaes, H., 2003. International corporate governance and corporate cash holdings. Journal of Financial and Quantitative Analysis, 38, pp.111–133.
Fazzari, S., Hubbard, R., and Petersen, B., 1988. Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1, pp.141–195.
Fee, C.E., Hadlock, C.J. and Pierce, J.R., 2009. Investment, financing constraints, and internal capital markets: Evidence from the advertising expenditures of multinational firms. The Review of Financial Studies, 22, pp.2361–2392.
Fuller, W.A., 1996. Introduction to statistical time series. New York: Wiley.
Green, S., 2004. The development of China’s stock market, 1984–2002. London: Routledge Curzon.
Jensen, G.R., Solberg, D.P., and Zorn, T.S., 1992. Simultaneous determination of insider ownership, debt, and dividend policies. Journal of Financial and Quantitative Analysis, 27, pp.247–263.
Kerstein, J. and Kim, S., 1995. The incremental information content of capital expenditures. The Accounting Review, 70, pp.513–526.
Khurana, I. K., Pereira, R., and Martin, X., 2006. Firm growth and disclosure: An empirical analysis. Journal of Financial and Quantitative Analysis, 41, pp.357–380.
Kung, F.H., Cheng, C.L., and James, K., 2010. The effects of corporate ownership structure on earnings conservatism: Evidence from China. Asian. Journal of Finance & Accounting, 2, pp.47–68.
Lamont, O.A., 2000. Investment plans and stock returns. Journal of Finance, 55, pp.2719–2745.
La Porta, R., Lopez-de-Silanes, F., and Zamarripa, G., 2003. Related lending. Quarterly Journal of Economics, 119, pp.231–268.
Li, S. and Filer, L., 2007. The effects of the governance environment on the choice of investment mode and the strategic implications. Journal of World Business, 42, pp.80–98.
Lin, B.X., Zhang, Y., and Zhu, N., 2009. Does Bank ownership increase firm value? Evidence from China. Global Finance Journal, 28, pp.720–737.
Ma, S., 2004. The efficiency of China’s stock market. Hampshire, England: Ashgate.
Malmendier, U. and Tate, G., 2005. CEO overconfidence and corporate investment. Journal of Finance, 60, pp.2661–2700.
Martins-da-Rocha, V.F. and Riedel, F., 2010. On equilibrium prices in continuous time. Journal of Economic Theory, 145, pp.1086–1112.
NBER, 2010. Business cycle expansions and contractions (http://www.nber.org/cycles).
Sannikov, Y., 2008. A Continuous-Time Version of the Principal-Agent Problem. Review of Economic Studies, 75, pp.957–984.
Titman, S., Wei, K.C.J., and Xie, F., 2004. Capital investments and stock returns. Journal of Financial and Quantitative Research, 39, pp.677–700.
Vuolteenaho, T., 2002. What drives firm-level stock returns? Journal of Finance, 57, pp.233–264.
Wang, P. and Wang, P., 2010. Price and volatility spillovers between the Greater China Markets and the developed markets of US and Japan. Global Finance Journal, 21, pp.304–317.
Wang, Y. and Di Iorio, A., 2007. The cross section of expected stock returns in the Chinese A-share market. Global Finance Journal, 17, pp.335–349.
Wurgler, J., 2000. Financial markets and allocation of capital. Journal of Financial Economics, 58, pp.187–214.
Xu, W., Zeng, Y., and Zhang, J., 2011. Tax enforcement as a corporate governance mechanism: Empirical evidence from China. Corporate Governance: An International Review, 19, pp.25–40.