Value versus growth: Australian evidence

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Author(s)
Gharghori, Philip
Stryjkowski, Sebastian
Veeraraghavan, Madhu
Griffith University Author(s)
Year published
2013
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The value‐growth effect is one of the most pervasive patterns in stock prices. In this study, the ability of four proxies for value‐growth, book‐to‐market, sales‐to‐price, earnings‐to‐price and cash‐flow‐to‐price to explain equity returns is analysed. The findings show that in aggregate, book‐to‐market best explains cross‐sectional variation in Australian equity returns, which in isolation suggests that it is the superior proxy for value‐growth. The analysis is taken further and the value‐growth effect is examined separately in positive and negative earnings firms. After segregating firms, it is found that in the negative ...
View more >The value‐growth effect is one of the most pervasive patterns in stock prices. In this study, the ability of four proxies for value‐growth, book‐to‐market, sales‐to‐price, earnings‐to‐price and cash‐flow‐to‐price to explain equity returns is analysed. The findings show that in aggregate, book‐to‐market best explains cross‐sectional variation in Australian equity returns, which in isolation suggests that it is the superior proxy for value‐growth. The analysis is taken further and the value‐growth effect is examined separately in positive and negative earnings firms. After segregating firms, it is found that in the negative earnings sample, book‐to‐market is the best value‐growth proxy and in the positive earnings sample, cash‐flow‐to‐price has the highest level of significance and is thus the superior value‐growth proxy. The economic significance of this result is telling, as the firms that report positive earnings are much larger than those that report negative earnings.
View less >
View more >The value‐growth effect is one of the most pervasive patterns in stock prices. In this study, the ability of four proxies for value‐growth, book‐to‐market, sales‐to‐price, earnings‐to‐price and cash‐flow‐to‐price to explain equity returns is analysed. The findings show that in aggregate, book‐to‐market best explains cross‐sectional variation in Australian equity returns, which in isolation suggests that it is the superior proxy for value‐growth. The analysis is taken further and the value‐growth effect is examined separately in positive and negative earnings firms. After segregating firms, it is found that in the negative earnings sample, book‐to‐market is the best value‐growth proxy and in the positive earnings sample, cash‐flow‐to‐price has the highest level of significance and is thus the superior value‐growth proxy. The economic significance of this result is telling, as the firms that report positive earnings are much larger than those that report negative earnings.
View less >
Journal Title
Accounting and Finance
Volume
53
Issue
2
Copyright Statement
© 2013 AFAANZ. This is the peer reviewed version of the following article: Value versus growth: Australian evidence, Accounting and Finance, Volume 53, Issue 2, Pages 393-417, 2013, which has been published in final form at https://doi.org/10.1111/j.1467-629X.2012.00474.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving (hhttp://olabout.wiley.com/WileyCDA/Section/id-828039.html)
Subject
Accounting, Auditing and Accountability not elsewhere classified
Applied Economics
Accounting, Auditing and Accountability
Banking, Finance and Investment