Asset Growth And Stock Returns: Evidence From The Pacific-Basin Markets
Source: City University of London (Cass)
This study examines the effect of corporate asset growth on stock returns using data on nine equity markets in the Pacific-Basin region (PACAP). There is a pervasive negative relation between asset growth and subsequent stock returns, suggesting potential inefficiencies of the region's financial systems in allocating capitals and valuing investment opportunities. Yet the relation is weaker relative to the U.S. market. The authors further examine factors affecting the difference in the magnitude of the asset growth effect across the PACAP markets and the difference between the PACAP region and the U.S., such as homogeneity of asset growth, persistence in growth and profitability, overinvestment tendency, and corporate financing choices.