Size and Book-to-Market Factors in Earnings and Returns

Size and Book-to-Market Factors in
Earnings and Returns
EUGENE F. FAMA and KENNETH R. FRENCH*

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The Journal of Finance
Volume 50, Issue 1

Size和Market-to-book ratio对于profitability的解释力。

ABSTRACT
We study whether the behavior of stock prices, in relation to size and book-to-market-equity
(BE/ME), reflects the behavior of earnings. Consistent with rational
pricing, high BE/ME signals persistent poor earnings and low BE/ME signals
strong earnings. Moreover, stock prices forecast the reversion of earnings growth
observed after firms are ranked on size and BE/ME. Finally, there are market, size,
and BE/ME factors in earnings like those in returns. The market and size factors
in earnings help explain those in returns, but we find no link between BE/ME
factors in earnings and returns.

The Cross-Section of Expected Stock Returns

EUGENE F. FAMA,

KENNETH R. FRENCH

JF Volume 47, Issue 2

June 1992 

Pages 427–465

控制了Size和Market-to-Book Ratio, β 就没什么解释力了。

Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market β, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in β that is unrelated to size, the relation between market β and average return is flat, even when β is the only explanatory variable.

Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting

Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting

Sugata Roychowdhury, Ross L. Watts

Journal of Accounting and Economics 44 (2007) 2–31

Market-to-book ratio原来也有当conservatism proxy的时候，它和寻常人们用的Basu的那个earnings timeliness proxy不完全一致。在两种情形下，他们成正比或反比。

是Sloan的大牛写的，有空在翻出来看看。


Using an accounting conservatism theory that reflects accounting’s role in practice, we investigate the relation between two extensively used measures of conservatism: asymmetric timeliness of earnings and the market-to-book ratio (MTB). We predict and observe that when asymmetric timeliness is measured cumulatively over long periods, its relation with end-of-period MTB is positive. When asymmetric timeliness is measured over short periods, its dependence on beginning of-period composition of equity value (EV) is responsible for its negative association with MTB. Further, asymmetric timeliness appears to measure conservatism more efficiently when it is estimated cumulatively over multiple periods.

Discussion of ‘‘Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting’’

Anne Beatty

这文还有一篇discussion。

Finance Research Letters

Volume 3, Issue 4, December 2006, Pages 253–266

On the relation between the market-to-book ratio, growth opportunity, and leverage ratio

Long Chena, Xinlei Zhao

Market-to-book ratio和leverage ratio成反比。

Abstract

The negative relation between the market-to-book ratio and leverage ratio is one of the most widely documented empirical regularities in the capital structure literature. Most related studies take this negative relation as given and debate about its economic interpretation. We show that firms with higher market-to-book ratios face lower debt financing costs and borrow more. The relation between the market-to-book ratio and leverage ratio is not monotonic and is positive for most firms (more than 88% of COMPUSTAT firms and more than 95% of total market capitalization). The previously documented negative relation is driven by a subset of firms with high market-to-book ratios.