Zhang (2005) found that a portfolio of value companies in the Hong Kong market which repurchased their own stocks generated positive abnormal returns compared to a portfolio of companies that were similar in terms of size and book-to-market ratio
, but did not repurchase.
A positive buy trade performance thus indicates that managers buy stocks that subsequently outperform other stocks with similar stock characteristics with regard to firm size, book-to-market ratio
, and momentum.
Stattman (1980) and Rosenberg, Reid, and Lanstein (1985) are the pioneer researchers who document the relationship between expected returns and book-to-market ratio
. Growth firms are those firms that have low BTM ratio and value firms are those that have high BTM ratio.
Prior studies argue that existing top managers may not have reported goodwill impairment losses (by reporting zero goodwill impairment) when their firms' book-to-market ratio
was above one because of concern for their personal reputations (Beatty and Weber 2006, Masters-Stout et al.
We conclude that a model, which incorporates market factor, firm size, book-to-market ratio
, earnings-to-price ratio and liquidity, provides a good description of the variation in stock returns compared to the competing models.
al (2004) find that US firms opting for rights offers tend to have a higher book-to-market ratio
, a higher return on assets, a higher current ratio, and a lower level of debt.
There was a significant negative relationship between book-to-market ratio
and stock returns in both conditions which also contradicts the emerging market research findings of Claessens et al.
Further, Harvey and Siddique  and Wen and Yang  argue that conditional coskewness, which could capture similar information contained in the size and book-to-market ratio
, complements market beta to explain the return.
The F-score originally was developed for firms with high book-to-market ratio
. However, it has been found to be robust across different levels of financial health.
Value companies are characterized by high rates of price fundamentals (profits, dividends, cashflow and book-to-market ratio
), whereas growth companies present low rates (GHARGHORI; STRYJKOWSKI; VEERARAGHAVAN, 2012).
As we move down to lower deciles, median book-to-market ratio
also increases across years.
Fama and French (1992) confirmed that size and book-to-market ratio
could capture the cross-sectional stock returns together with [beta], leverage, and earnings-price ratios.