This paper examines the cross-sectional relation between leverage and future stock returns. Prior research documents a puzzling negative correlation. We show that it is largely caused by firms' use of internal financing when having significant off-balance-sheet operating assets due to...

Many accounting numbers appear in standard factor models, including book value, investment, return on equity (ROE), and other profitability measures. However, they do so without a clear explanation of why they indicate investment risk. The papers shows that these numbers are generated under...

This paper analyzes the market-to-book premium based on the accounting principles that govern the measurement of the book value. The premium is accordingly disaggregated into two components: one resulting from the conservatism principle that biases the measurement of assets-in-place; the other due...