Operating Hedge and Gross Profitability Premium

• 成果类型: Article
• 署名作者: Kogan, Leonid; Li, Jun; Zhang, Harold h.
• 署名单位: National Bureau of Economic Research; Massachusetts Institute of Technology (MIT); University of Texas System; University of Texas Dallas; University of Texas System; University of Texas Dallas
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13275
• 发表日期: 2023
• 页码: 3387-3422
• 关键词: cross-section; corporate-investment; RISK; explanation; leverage; time

摘要

We show theoretically that variable production costs reduce systematic risk of firms' cash flows if capital and variable inputs are complementary in firms' production and input prices are procyclical. In our dynamic model, this operating hedge effect is weaker for more profitable firms, giving rise to a gross profitability premium. Moreover, gross profitability and value factors are distinct and negatively correlated, and their premia are not captured by the capital asset pricing model (CAPM). We estimate the model by simulated method of moments, and find that its main implications for stock returns and cash flow dynamics are quantitatively consistent with the data.