The Effect of Capital Productivity Management on Capital Asset Pricing Models with a Focus on Life Cycle

Subject Areas : Business Management

ali  alimohammadpour ¹ (PhD student, Department of Accounting, Sari Branch, Islamic Azad University, Sari, Iran.)
ali  zabihi ² (Assistant Professor, Department of Accounting, Sari Branch, Islamic Azad University, Sari, Iran)
khosro  Faghani Makrani ³ (Associate Professor, Department of Accounting, Sari Branch, Islamic Azad University, Sari, Iran)

Received: 2017-08-24 Accepted : 2019-03-09 Published : 2020-03-20

Keywords: Stock Return, Capital Productivity Management, Corporate Life Cycle, Capital asset pricing, Explanatory Predictive Power,

Abstract :

Capital productivity concerns the measurement of management power in making optimal use of capital as one of the important and limited company resources. In companies with highly efficient capital productivity, stocks are expected to offer higher returns and the explanatory power of the models proposed to predict stock returns is assumed to increase. The purpose of this study was, thus, to examine the extent to which capital productivity might influence the explanatory power of stock market predictive models and to scrutinize this viable effect at various stages of corporate life cycle. The Operating Profit Ratio (ROIC) was used to operationalize Capital productivity, the Tripartite Factor Model (Fama & Franch, 1993) and the Pentagonal Factor Model (Fama & Franch, 2013) were employed to predict stock returns and corporate life cycle was categorized via the Dickinson Cash Flow (2011). The research sample comprised 110 companies with specific descriptive characteristics selected from among all those listed on the Tehran Stock Exchange during a ten-year period from 2005 to 1394. The results of the hypothesis testing analyses demonstrated that capital productivity affects the relationship between market factor and risk-free growth at all stages of the life cycle, but size was found significantly correlated with risk merely at the maturity stage of the life cycle.

References:

Anthony, J., Ramesh, K, (1992), Association between accounting performance measures and stock prices: a test of the life cycle hypothesis, Journal of Accounting and Economics, 15, 203- 227.

Babolivan and Mozafari (2016) ,“ Comparison of the predictive power of the Fama and French five-factor model with four-factor caractor model and q factor-HXZ in explaining stock returns”, Quarterly Journal of Financial Knowledge Analysis of Securities, Vol(30). PP:15- 32. [ In Persian]

Black E.L, (1998), Life-Cycle Impacts on the Incremental Relevance of Earnings and Cash flow Measures. Journal of Financial Statement Analysis, 40-56.

Carhart, M. (. (1977).. On persistence in mutual fund performance. Jornal of Finance 52,, 57-82.

Dickinson, Victoria, (2011), Cash Flow Patterns as a Proxy for Firm Life Cycle, The Accounting Review, 86 (6), 1969-1994.

Emami,ali.,Rahimi,forogh.,(2016),“Extensions of Olson & Fletham & Olson Valuation Models Using the Dickinson Life Cycle Classification ”, Journal  of Management Accounting, Vol(30), PP:5- 24. [ In Persian]

Etemadi et al. (2016) ,“ Evaluating the Company's Life-cycle Role in Optimizing the Olson Valuation Model”, Journal of Accounting Accounting and Auditing Management, Vol(71). PP:112- 140. [ In Persian]

Fama E. and French. A. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance. Vol. 47, No. 2,, pp. 427-465.

Fama E. and French. A. (1993). Common Risk Factors in the Returns on Stocks and Bonds,. Journal of Financial Economics, Vol. 33, No. 1, pp. 3-56.

Fama, E., French, k. (2015), "A Five-factor Asset Pricing Model", Journal of Financial Economic 116, 1-22.

Hou, K., C. Xue, and Zhang, L. (2014), "Digesting anomalies: an investment approach", Review of Financial Studies, forthcoming

Izidinia, et al. (2015), “Comparison of the Fama and French Factor model with Carheart's four-factor main model in explaining the stock returns of listed companies in Tehran Stock Exchange”, Quarterly Journal of Asset Management and Financing,Vol(3). PP:32-45.[In Persian]

Karami, Gholamreza and Hamed Omrani (2010). The impact of the company's life cycle on the relevance of risk and performance criteria. Financial Accounting Research, Vol (3).PP:1-18.[In Persian]

Khodadadi V. and M.R. Emami, (2010), Comparative Assessment of Fetham-ohlson sign oriented and Traditional Models, International Research Journal of Finance and Economics, 36, 59-73.

Park Y, Chen K, (2006), The Effect of Accounting Conservatism and Life-Cycle Stages on Firm Valuation, Journal of Applied Business Research. 22, 75-92.

Rahimi, forogh (2016). Evaluating the Company Life-cycle Role in Optimizing the Olson & Faltham Valuation Model. Accounting PhD Thesis, Tarbiat Modarres University. [In Persian]

Xu, Bixi, (2007), Life Cycle Effect on the Value Relevance of Common Risk Factor, Review of Accounting and Finance, 6, 162-175

Zhang, X. (2013), "Essays on Empirical Asset Pricing", Doctora Thesis, Universitat Autonoma DE Barcelona.