Are Firms in "Boring" Industries Worth Less? / Jia Chen, Kewei Hou, René M. Stulz.

Format:

Book

Author/Creator:

Chen, Jia.

Contributor:

National Bureau of Economic Research.

Hou, Kewei.

Stulz, René M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20880.

NBER working paper series no. w20880

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

Using theories from the behavioral finance literature to predict that investors are attracted to industries with more salient outcomes and that therefore firms in such industries have higher valuations, we find that firms in industries that have high industry-level dispersion of profitability have on average higher market-to-book ratios than firms in low dispersion industries. This positive relation between market-to-book ratios and industry profitability dispersion is economically large and statistically significant and is robust to controlling for variables used to explain firm-level valuation ratios in the literature. Consistent with the mispricing explanation of this finding, we show that firms in less boring industries have a lower implied cost of equity and lower realized returns. We explore alternative explanations for our finding, but find that these alternative explanations cannot explain our results.

Notes:

Print version record

January 2015.