For return on assets we will use net income and end of year total assets. Book value of equity consists of two economically different components. On compustat quarterly i found three variables that seemed to be. Not for publication we include in this appendix a number of details and robustness checks that are omitted. We show that firms with higher markettobook ratios face lower debt financing costs and borrow more. Limitations of excel sheets on the number of rows 256. Both compustat and crsp include variables which contain the split adjustment factor.
Compustat fundamentalsbalance sheet items firm size log. Problems with merging crsp with compustatcrsp merged. The market and size factors in earnings help explain those in returns, but we find no link between beme factors in earnings and returns. Crsp mainly covers stock market data from exchanges.
The comprehensive compustat database provides company data going back 40. Earnings, retained earnings, and booktomarket in the cross section of expected returns ray bally 1, joseph gerakos2, juhani t. Booktomarket, retained earnings, and earnings in the cross section. Google market to book and return on assets versus industry. I calculate the variables using the data in the compustat annual industrial. Computes annual buyandhold market equity for use as. Why do we take the natural log of booktomarket ratios. On the relation between the markettobook ratio, growth. Compustat databases like global and north america have great part databases that can be used to find out what the historical composition is for indexes of stock exchanges. Hello everyone, im trying to merge compustat global annual data with compustat global security data by gvkey. For the markettobook ratio we need the number of shares outstanding, end of year stock price, and book value of equity.
Lists of annual, quarterly and variable compustat north america data items. Crspannual updatecrspcompustat mergedfundamental annual miscellaneous items. Wharton research data services taps the most comprehensive sources of financial, accounting, economic, management, marketing, banking, and insurance data. It can be surprisingly hard using only the two commonly available datasets for financial and stock information, crsp and compustat. A reexamination of firm size, booktomarket, and earnings price in the crosssection of expected stock returns volume 32 issue 4 dongcheol kim. Evidence from the stock market yuriy gorodnichenko and michael weber. Book equity is constructed from compustat data or collected from the moodys industrial, financial, and utilities manuals. Use gvkey compustat firm identifier at assets total, ceq book value of equity, datadate end of year date from the first table, and match on gvkey and datadate on securities table to get cshoc shares outstanding and prccd end of day stock price. The book to market bm ratio of event t is then the log of the ratio of book. Compustat standardizes data from the original filings to remove reporting variability and to allow for an accurate comparison across. The models identify where specific compustat global data items are located in each statement.
Fortify your research with a timetested database of financial, statistical, and market. Crspannual updatecrspcompustat mergedfundamental annualsupplemental data items csho. This online appendix provides detailed derivation, variable definition, and portfolio construction for the. The corporate leverage variables are total debt to market value of assets tdm, total debt to book value of assets tda, longterm debt to market value of assets ldm, and longterm debt to book value of assets lda.
At my department everybody wonder how come it is taking more than usual for me to complete the phd and on the job market people will be. In the example code, the following variables are retrieved. High booktomarket ratios can be interpreted as the market valuing the. Crsp monthly, compustat annual and quarterly data aligns accounting fundamentals with market prices. In compustat, this variable is adjex and in crsp these variables are cfacpr and cfacshr. Bm book to market ratio book values are from compustat and. Now i am working with compustat global for the first time and am struggling to find a comparable time series.
Davis abstract using a database that is free of survivorship bias, this article finds that booktomarket equity, earnings yield, and cash flow yield have significant explanatory power with respect to the crosssection of realized stock returns during the period. Indicator variables at the bottom of the table identify these observations. Crsp 2,201,325 obersevations 31 variables panel data. Variables are trimmed at the 1st and 99th percentiles based on booktomarket, size, prior onemonth return, and prior oneyear return skipping a month. Fama and french 1992 find that two variables, market equity me and the ratio of book equity to market equity beme capture much of. The authors go on to speculate that the booktomarket ratio along with size explain return because they proxy for unknown economic risk factors. Hi, i am struggling to calculate market to book ratio tobins q from compustat. For my thesis i would like to merge crsp with compustatcrsp merged. Limitations of industry concentration measures constructed.
The calendar year basis allows you to compare market data among companies based on a particular point in time. Estimating market value of equity with crsp and compustat. Compustat data is standardized, not as reported by the company so there may be a difference from what is reported in the 10k or 10q. Booktomarket, retained earnings, and earnings in the cross section of stock returns ray bally 1, joseph gerakos2, juhani t. Book value for a company may be reported for fiscal year ending june, but you might want to calculate mb ratio at calendar yearend month, december. A reexamination of firm size, booktomarket, and earnings. I need this ratio for all the uk companies of last 15 year and i am not sure about which variables and.
Stock price adjustment factors in compustat and crsp. Compustat fundamentalsbalance sheet items income before. Crsp follows calendar regime and compustat follows fiscal regime e. Balance sheet data are obtained from the standard and poors compustat database. The limitations of industry concentration measures constructed with compustat data. The results show that on a relative scale, the markettobook assets ratio outperforms all other proxy variables that we investigate.
The data we need is in compustat fundamental annual funda. I am experiencing difficulties finding the right items to calculate the book value of a firm from the compustat fundamentals quarterly. Appendix unless otherwise noted, data are from the compustats. All debt measures are computed as of the end of the calendar year 2004. Documentation on compustat data annual financial data. My solution is to multiply the crsp market value with the last known ratio of compustat to crsp market value.
Fama and french 1992 find that two variables, market equity me and the ratio of book equity to market equity beme capture much of the cross. Compustat fundamentalsincome statement items equity book value bkvlps bkvlps. Be is the book value of stockholders equity, plus balance sheet deferred taxes and investment tax credit if available, minus the book value of preferred stock. Compustat mainly covers accounting data for public and private companies. For the second measure of booktomarket, we use compustats book value. In addition, the analysis of becker and stromberg 2012 indicates multivariate outliers also affect commonly used control variables including booktomarket ratios, market leverage, and other data from the compustat and crsp databases. Neither the bookmarket value of equity ratio nor the market value of equity has consistent explanatory powerfor stock returns, and the salesprice ratio is a more reliable explanatoryfactor. Overview of compustat global data august 2, 2002 26 income statement models this chapter presents a number of financial statemen t models for the balance sheet, income statement, and statement of cash flows. How to calculate the book value with compustat fundamentals quarterly. Introduction to wrds and using the webinterface to. Several screening variables are preselected to produce one record per gvkeydatadate pair, while keeping the vast majority of records. Tobins q ratio provides information on how well a companys investments pay off. Instead, they find that booktomarket captures the effects of leverage, and that size and booktomarket together absorb the effects of the earningtoprice ratio in explaining average return. Using this items, the book value has the wrong order of magnitude too small.
Market equity size is price times shares outstanding. Price is from crsp, shares outstanding are from compustat if available or crsp. In column 4, the dummy variables are replaced by hicompustat and leverage. We predict that booktomarket strategies work because the retained earnings component of the book value of equity includes the accumulation and, hence, the averaging of. Other databases like crsp and datastream offer similar options but the compustat option is a very easy to use one. The relation between the markettobook ratio and leverage ratio is not monotonic and is positive for most firms more than 88% of compustat firms and more than 95% of total market capitalization. Compustat data files compustat data files, distributed by standard and poors compustat services, inc. Long term debt market value of assets ldm ldm is the ratio. Examples of excluded rows include those with restated data, different views of the same data pro forma, prefasb. How to use compustat global for daily stock returns. Merging compustat annual and crsp monthly in stata. The booktomarket ratio helps investors find the value of a company by comparing the firms book value to its market value. Depending upon the data set, coverage may extend as far back as 1950 through the most recent yearend. Aocime are set to zero when re, cc, or aoci is nonpositive.
Linnainmaa3,4 and valeri nikolaev 1university of chicago booth school of business, united states. Second, the ability of variables deflated by current market values. Booktomarket, retained earnings, and earnings in the. The investment opportunity set and its proxy variables by. If you have access to compustat through wharton you can find the manual there at. Understanding the compustat north america database 2. Since we are interested in computing roe for each industry over a number of years, we will need net income, the book value of equity, the sic industry code and the fiscal year. Book value per share 25 calendar year 27 canadian index code 27 canadian index code current 27 capital expenditures compustat business information files 28 footnote codes 28 capital expenditures restated 28 capital expenditures statement of cash flows 28 annual footnote code 29. An overview of the adjustment factor variables is available in the compustat manual understanding the data on page 91 chapter 6. Documentation on compustat data variable name variable description annual financial data financial performance measures ros annual return on sales net income revenues. Dissertation chapter 1 how important is target leverage. Compustat files also contain information on aggregates, industry segments, banks, market prices, dividends, and earnings. Bm book to market ratio book values are from compustat and market value is from cec test121 at florida international university. Estimating a firms market value of common equity mve at a given point in time is something that a finance researcher does quite often.
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