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Asset growth anomaly in Europe: Do profits and losses matter?

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  • Papanastasopoulos, Georgios A.

Abstract

This paper investigates whether the well-documented asset growth effect on stock returns exists across both profit and loss firms in European capital markets. We find that the asset growth anomaly is more pronounced across loss firms and is significantly dampened by the inclusion of profit firms in the sample. The raw and abnormal returns earned from a hedge strategy on balance sheet growth for loss firms are almost two times higher than the respective returns for profit firms. Our evidence casts doubt on a risk-based explanation, thereby lending credence to the suggestion that the asset-growth effect is attributable to mispricing.

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  • Papanastasopoulos, Georgios A., 2017. "Asset growth anomaly in Europe: Do profits and losses matter?," Economics Letters, Elsevier, vol. 156(C), pages 106-109.
    • Handle: RePEc:eee:ecolet:v:156:y:2017:i:c:p:106-109
    DOI: 10.1016/j.econlet.2017.04.029
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    References listed on IDEAS

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    Cited by:

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    2. Nabila Abid & Michael Dowling & Federica Ceci & Junaid Aftab, 2023. "Does resource bricolage foster SMEs' competitive advantage and financial performance? A resource‐based perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 32(8), pages 5833-5853, December.
    3. Lu, Jing & Yang, Nien-Tzu & Ho, Keng-Yu & Ko, Kuan-Cheng, 2022. "Lottery demand and the asset growth anomaly," Finance Research Letters, Elsevier, vol. 48(C).

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