Empirical Test for CAPM [5]
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关键词:Empirical Testmarket value growth rateempirical test resultscontrolling variablesgrowth rate of the company
摘要:Empirical test doesn’t offer satisfying result as for the explaining power of CAPM in the real world, especially in model 1 without controlling variables for the features of different companies, there are many reasons for this fact, and the most important ones are followings.
The statistic significance indicates that higher market value of the company, then it has higher ROE growth rate. It is easy to explain the reason for this fact. Market value could represent the capital strength of the company to some extent, generally speaking, higher market value corresponds greater capital reserve and excellent market anticipation for the perspective of the company. In that case, the company could make use of powerful capital reserve to invest in many profitable projects and fields, then the ROE will grow sharply. So it is no wonder there exists the positive relationship between them. Of course, we should not neglect another fact, the ROE of the company could also imposes some influence on the market value for the company, that is to say, it is possible that there exists interaction between these two variables. Sometimes investors will choose the companies with higher ROE growth rate to invest and buy the stock of these companies, so perhaps the positive relationship is transferred from the ROE to the market value, but not the market value to the ROE.
Thirdly, here comes the asset of the company. Growth rate of company asset exhibits insignificant negative relationship with ROE. In fact, it could be explained through the enterprise life cycle theory. In the primary stage of the company, it is necessary for the company to expand the asset scale in order to survive in the market, and at the same time, it is hard for the company to get enough return and profit in the primary stage, in that case, speedy asset growth rate always corresponds to unsatisfying ROE level. When the company enters the mature stage, the step to expand will slow down and asset increases in lower speed, the ROE will enhance and more profit will be created for share holders and investors of the company. Of course, the explanation is built on the basis of theoretical speculation, it is necessary for us to search more proofs in the real management practice as for the relationship between ROE and company assets.
The last factor we need to consider is the debt of company. Growth rate of company debt exhibits insignificant positive relationship with ROE. The reasons for the fact perhaps lie in two aspects: firstly, the companies in the primary stage don’t bear the power to make use of debt from banks or other investors to expand the scale of the company. On the other side, the companies in mature stage could make good use of the debt as financial level to expand themselves effectively, so the debt growth rate show the feature that corresponds positively to the ROE. Secondly, debts also have the characteristic that it could play the role for cutting the interest fees of the company, as we know that, the interest fees of the bank credit or other debts could counteract the return of the company, which means that the debt growth rate is negatively related with the ROE, perhaps that is also the reason why the empirical test for debt and ROE is not significant as other explaining variables. Two kinds of the effect counteract with each other so that our statistic feature of the relationship between them is not obvious.
Conclusions
Empirical test doesn’t offer satisfying result as for the explaining power of CAPM in the real world, especially in model 1 without controlling variables for the features of different companies, there are many reasons for this fact, and the most important ones are
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