Publication Type

Working Paper

Publication Date

7-2014

Abstract

Studies have shown that firm asset growth predicts cross-sectional stock returns. Firms that shrink their assets earn superior returns while firms that substantially expand their assets incur poor returns in the following years. I show that the negative asset growth often implies poor operating performance and a high probability subsequently to be delisted from the exchanges and that the high asset growth is primarily fuelled by large external financing. The seemingly superior returns of the negative asset growth portfolios are due to the omission of delisting returns. The poor returns of the high asset growth portfolios coincide with the widely-documented return underperformance of firms that have resorted to debt or equity offerings. Controlling for the delisting bias and the underperformance following large external financing, I do not find an independent effect of asset growth on stock returns.

Keywords

Cross-Sectional Stock Returns, Asset Growth, Delisting Bias, External Financing

Discipline

Business | Finance and Financial Management

Research Areas

Finance

First Page

1

Last Page

36

Share

COinS