The causality relationships and cumulative impacts of the lags of earnings and the lags of capital expenditure on subsequent annual stock returns is examined using 40 different countries. The results suggest that there is a granger causality relationship from earnings to returns. Furthermore,...

In this study business cycle effects are taken into consideration in investigating the relationship between stock returns, earnings and capital expense in different countries. In countries where corporate governance rules and mechanisms are well-established, managers are closely monitored....

Research Question/Issue: We examine the nature of the dynamic linkage (causality) between earnings and capital investment using firm-level data from around the world to see whether the legal environment, including corporate governance and monitoring mechanisms, and financial development are...