What is Behind the Asset Growth and Investment Growth Anomalies?

• Main Author: FU, Fangjian
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2011
• Subjects: Asset Growth; Investment Growth; Cross-Sectional Stock Returns; Return Anomaly; Delisting; Equity and Debt Issuances; External Financing; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3159; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4158/viewcontent/FuFJ2011Asset_and_Investment_Growth_Anomalies_FMA.pdf
• Institution: Singapore Management University

Existing studies show that firm asset and investment growth predict cross-sectional stock returns. Firms that shrink their assets or investments subsequently earn higher returns than firms that expand their assets or investments. I show that the superior returns of the low asset and investment growth portfolios are due to the omission of delisting returns in CRSP monthly stock return file and that the poor returns of the high asset and investment growth portfolios are largely driven by the subsample of firms that have issued large amounts of debt or equity in the previous year. Controlling for the effects of the delisting bias and external financing, I do not find an independent effect of asset or investment growth on stock returns.