Effects of Macroeconomic and Firm-Specific Factors on Shareholder Wealth: Some Australian Evidence

Abstract

In today’s hyper-competitive global market there is an increasing focus on revenue growth. Analogously, shareholders and potential investors are interested in shareholder wealth and are also interested in predicted future growth if they were to invest their funds in a firm. This article expands on previous work that explored the variables that drive company wealth creation in the Miscellaneous Industrials sector of the Australian Stock Market. The authors previously studied how a company’s growth and wealth creation changed in comparison to the changes in the Miscellaneous Industrial index, using traditional and artificial intelligence (AI) feature selection techniques. Multi-domain models were used to reduce the number of variables to a manageable number. The primary aim of this study is to observe the effect of including macroeconomic and firm-specific factors (general market factors) into the multi-domain models. Using these selected variables and factors to explore their abilities to predict out of sample values in shareholder wealth and relative shareholder wealth. They find that the variables selected, linked with the macroeconomic and firm-specific factors improves the understanding of the model. The newly formed multi-domain models are found to be useful to select both shareholder and relative shareholder wealth; however, they were more effective with regards to shareholder wealth.

TOPICS: Wealth management, security analysis and valuation, developed, statistical methods