The 338th Wenlan Financial Forum

Abstract：

We revisit the ongoing debate on the link between operational efficiency (OE) and stock returns. We show that the conventional OE measure, constructed based on a stochastic frontier model (SFM), may be subject to estimation bias, thereby invalidating its application in studying stock performance. We address these issues by adopting a novel OE measure within a semiparametric SFM framework, aiming to provide an accurate measure of OE for valid inference on stock returns. Using a large sample of US listed firms from 1972 to 2020, we observe significant discrepancies in OE estimates between the conventional and semiparametric models, with the former positively and the latter negatively related to stock returns. These discrepancies lead to mispricing and subsequent negative returns. Furthermore, an arbitrage portfolio based on mispricing yields significant abnormal returns. Our findings indicate that increased OE is associated with higher cash flow volatility, higher stock return volatility, and notably greater downside risks. Our results provide robust evidence of the impact of OE on stock returns and provide a new paradigm for future studies on operational management.

Speaker Introduction：

Zhao Wang is an Associate Professor at the School of International Economics and Management, Capital University of Economics and Business, and a Master's Supervisor. He holds a Ph.D. in Finance from the University of Rhode Island, USA. His research focuses on empirical corporate finance. His work has been published in journals such as Financial Analysts Journal, Pacific-Basin Finance Journal, and Economic Modelling. He serves as an expert in the National Expert Pool for Graduate Education Evaluation and Monitoring and as an editorial reviewer for Accounting Research. He has participated in one General Program project funded by the National Natural Science Foundation of China.