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The asset growth effect: Insights from international equity markets

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  • Watanabe, Akiko
  • Xu, Yan
  • Yao, Tong
  • Yu, Tong

Abstract

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 overinvestment, market timing, or other forms of mispricing.

Suggested Citation

  • Watanabe, Akiko & Xu, Yan & Yao, Tong & Yu, Tong, 2013. "The asset growth effect: Insights from international equity markets," Journal of Financial Economics, Elsevier, vol. 108(2), pages 529-563.
    • Handle: RePEc:eee:jfinec:v:108:y:2013:i:2:p:529-563
    DOI: 10.1016/j.jfineco.2012.12.002
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    More about this item

    Keywords

    Asset growth; International equity markets; Return predictability; Optimal investment effect; q-Theory;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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