The Asset Growth Effect: Insights from International Equity Markets

Journal of Financial Economics (Impact Factor: 3.72). 07/2012; 108(2). DOI: 10.2139/ssrn.1787237


Firms with higher asset growth rates subsequently experience lower stock returns in international equity markets, consistent with the U.S. evidence. This negative effect of asset growth on returns is stronger in more developed capital markets and markets where stocks are more efficiently priced, but is unrelated to country characteristics representing limits to arbitrage, investor protection, and accounting quality. The evidence suggests that the cross-sectional relation between asset growth and stock return is more likely due to an optimal investment effect than due to over-investment, market timing, or other forms of mispricing.

26 Reads
    • "Their findings show that the different firm growth patterns used are related to firm age, firm size, and industry affiliation. Cooper, Gulen, and Schill (2008), Gray and Johnson (2011), and Watanabe et al. (2011) show that total asset growth is negatively related with future stock returns for the U.S., Australian, and international sample, respectively. Chung, Wright, and Charoenwong (1998) have also documented that growth in fixed assets plays an important role in investors' perspective on firm performance. "
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper aims to examine the impact of organizational growth on the profitability of Malaysian public listed companies for the period of 2001-2010. The sample consists of a balanced panel data of 240 companies from various sectors listed on the Main Board of Bursa Malaysia. The study develops multiple regression models to test the impact of organizational growth on firm performance. The results reveal that organizational growth has an impact on profitability. Two independent variables, viz. total assets growth and fixed assets growth, are found to be significantly affecting the performance of our sample firms. These findings may reveal that Malaysian public listed firms should particularly focus on total assets growth and fixed assets growth to maximize their returns.
    International Journal of Business and Society 06/2014; 15(2).
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We investigate the performance of the alternative three-factor model across markets. The important U.S. evidence of Chen, Novy-Marx, and Zhang (2010) in favor of the alternative model does not translate to a test setting using data from 40 non-U.S. stock markets. The three-factor model of Fama and French provides persistently a better description of average returns. Our analysis is robust across developed and emerging markets, robust to alternative measures of investment and profitability, to seasonality effects, to size-segmented subsamples and subperiods, to various test assets, and to the two-stage cross-section regression approach to test for priced factors.
    European Financial Management 10/2011; 20(1). DOI:10.1111/j.1468-036X.2011.00628.x · 1.03 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: I review recent research efforts in the area of empirical cross-sectional asset pricing. I start by summarizing the evidence on cross-sectional return predictability and the failure of standard (consumption) CAPM models and their conditional versions to explain these predictability patterns. One response in part of the recent literature is to focus on ad-hoc factor models, which summarize the cross-section of expected returns in parsimonious form, or on production-based approaches, which suggest links between firm characteristics and expected returns. Without imposing restrictions on investor preferences and beliefs, neither one of these two approaches can answer the question why investors price assets the way they do. Within the rational expectations paradigm, recent research that imposes such restrictions has focused on the ICAPM, long-run risks models, as well as frictions and liquidity risk. Approaches based on investor sentiment have focused on the development of empirical proxies for sentiment and for the limits to arbitrage that allow sentiment to affect prices. Empirical work that considers learning and adaptation of investors has worked with out-of-sample tests of cross-sectional predictability.
    Annual Review of Financial Economics 11/2012; 5(1). DOI:10.2139/ssrn.2175304 · 0.69 Impact Factor
Show more


26 Reads
Available from