Δρ. Dan Segal

Theory suggests that relatively inefficient firms should have lower and more uncertain future cash flows, which should lead to lower current equity values and future higher equity returns. However, the literature provides contradictory evidence about the relationship between operational efficiency and future stock performance. We provide evidence that investors are not fully aware of firms’ operational inefficiencies, and are surprised when future negative earnings surprises continue resulting in a significant negative drift in returns for these firms. Furthermore, we provide evidence that analysts do not properly incorporate information about operational inefficiency into their earnings forecasts and target prices, and seem not to care about the issue during conference calls.

Date: 23 Σεπτεμβρίου 2022

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