Future profitability and stock returns of innovative firms in Australia

Bedford, Anna; Ma, Le; Ma, Nelson; Vojvoda, Kristina

doi:10.1016/j.pacfin.2021.101508

Cited by 10 publications

(7 citation statements)

References 10 publications

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“…The first primary independent variable in this study is firm profitability. We used return on assets (ROA) for the baseline model due to the extensive use of profitability measurement in the financial literature (Bedford et al 2021;Hirshleifer et al 2018;Otero-González et al 2021). The robustness test involved the use of three other profitability measurements (Liu et al 2019).…”

Section: Main Variablementioning

confidence: 99%

Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?

Akhmadi

Januarsi

2021

Economies

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This study investigates the potential factors explaining the inconsistent relationship between profitability and firm value. Specifically, it examines whether dividend policy contributes to the profitability–firm value relationship and determines the form of the moderating variables. We use a unique data set from the Indonesian capital market, with sustainable and responsible investment (SRI)-KEHATI-listed firms from 2010 to 2019. Adopting hierarchy moderating analysis, the results show a positive direct relationship between profitability and firm value. Moreover, the profitability–firm value relationship becomes stronger with a higher dividend policy ratio. We complement this with evidence that the dividend policy plays a role as a pure moderator in more sustainable and responsible firms. A sensitivity battery analysis and the endogeneity concern show consistent results as the baseline model, implying that the model is robust to different conditions. Additional tests revealed that the dividend policy is more prominent in low-leverage enterprises, low-intensity advertising firms, and during the financial service authority’s post-dividend policy regulation phase. The implication of our study is that corporate policy and country regulation play a role as a potential competitive strategy to increase shareholder value for SRI-KEHATI-listed firms.

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Section: Main Variablementioning

confidence: 99%

Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?

Akhmadi

Januarsi

2021

Economies

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“…Subsequently, there are numerous studies which have investigated the impact of separate intangible assets on future accounting returns. As far as patents are concerned, Hirshleifer et al (2018) in the USA and Bedford et al (2021) in Australia, found positive association between innovative firms, in terms of patents in various technology sectors and future profitability. By using ROA and ROE as earnings proxies, Hsu et al (2021) provided evidence that US trademarks scaled by total assets can predict one-year ahead earnings.…”

Section: Intangible Assetsmentioning

confidence: 99%

Can intangible assets predict future performance? A deep learning approach

Pechlivanidis

Ginoglou

Barmpoutis

2021

IJAIM

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Purpose The aim of this study is to evaluate of the predictive ability of goodwill and other intangible assets on forecasting corporate profitability. Subsequently, this study compares the efficiency of deep learning model to that of other machine learning models such as random forest (RF) and support vector machine (SVM) as well as traditional statistical methods such as the linear regression model. Design/methodology/approach Studies confirm that goodwill and intangibles are valuable assets that give companies a competitive advantage to increase profitability and shareholders’ returns. Thus, by using as sample Greek-listed financial data, this study investigates whether or not the inclusion of goodwill and intangible assets as input variables in this modified deep learning models contribute to the corporate profitability prediction accuracy. Subsequently, this study compares the modified long-short-term model with other machine learning models such as SVMs and RF as well as the traditional panel regression model. Findings The findings of this paper confirm that goodwill and intangible assets clearly improve the performance of a deep learning corporate profitability prediction model. Furthermore, this study provides evidence that the modified long short-term memory model outperforms other machine learning models such as SVMs and RF , as well as traditional statistical panel regression model, in predicting corporate profitability. Research limitations/implications Limitation of this study includes the relatively small amount of data available. Furthermore, the aim is to challenge the authors’ modified long short-term memory by using listed corporate data of Greece, a code-law country that suffered severely during the recent fiscal crisis. However, this study proposes that future research may apply deep learning corporate profitability models on a bigger pool of data such as STOXX Europe 600 companies. Practical implications Subsequently, the authors believe that their paper is of interest to different professional groups, such as financial analysts and banks, which the authors’ paper can support in their corporate profitability evaluation procedure. Furthermore, as well as shareholders are concerned, this paper could be of benefit in forecasting management’s potential to create future returns. Finally, management may incorporate this model in the evaluation process of potential acquisitions of other companies. Originality/value The contributions of this work can be summarized in the following aspects. This study provides evidence that by including goodwill and other intangible assets in the authors’ input portfolio, prediction errors represented by root mean squared error are reduced. A modified long short-term memory model is proposed to predict the numerical value of the profitability (or the profitability ratio) in contrast to other studies which deal with trend predictions, i.e. the binomial output result of positive or negative earnings. Finally, posing an extra challenge to the authors’ deep learning model, the authors’ used financial statements according to International Financial Reporting Standard data of listed companies in Greece, a code-law country that suffered during the recent fiscal debt crisis, heavily influenced by tax legislation and characterized by its lower investors’ protection compared to common-law countries.

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“…Naidu et al (2021) ratify the adverse effect of COVID-19 on the stock returns of various sectors in Australia. Bedford et al (2021) probe the impact of innovation on future stock returns and profitability of Australian firms. They conclude that innovative firms would yield higher future profitability but not higher future stock returns.…”

Section: Literature Reviewmentioning

confidence: 99%

How Volatility and Herding of the Stock Markets in the Oceania Region Influence Investors and Policymakers: A Sector-Wise Exploration in Pre and Post-COVID Period

Roy¹,

Arefin²,

Mallik³

2022

IJEF

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The paper probes the sector-wise presence of volatility persistence, herding behavior and corresponding implications on investors and policymakers in the Oceania region both in Pre-COVID & Post-COVID era. The inspection is based on seven identical sectors from both Australia and New Zealand using GARCH (Generalized autoregressive conditional heteroscedasticity) methods for volatility analysis and CSAD (Cross-Sectional Absolute Deviation) method for herding behavior. This paper finds the existence of herding behavior only in the consumer discretionary sector for both countries which delineates efficient market conditions for other sectors. The market is highly favorable for the investors in Food & Beverages, IT, and Healthcare sectors in both countries due to the potential growth opportunity while Real Estate and Financial sectors should be meticulously assessed in line with the alteration of macroeconomic forces. Fiscal and monetary measures along with the influx of labor forces and technological breakthroughs should be the key concentrations for the policymakers of both countries.

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Future profitability and stock returns of innovative firms in Australia

Cited by 10 publications

References 10 publications

Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?

Profitability and Firm Value: Does Dividend Policy Matter for Indonesian Sustainable and Responsible Investment (SRI)-KEHATI Listed Firms?

Can intangible assets predict future performance? A deep learning approach

How Volatility and Herding of the Stock Markets in the Oceania Region Influence Investors and Policymakers: A Sector-Wise Exploration in Pre and Post-COVID Period

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