Asset Growth and the Cross-Section of Stock Returns
Michael J. Cooper
University of Utah - David Eccles School of Business
Purdue University - Krannert School of Management
Michael J. Schill
University of Virginia – Darden Graduate School of Business Administration
July 10, 2007
AFA 2007 Chicago Meetings Paper
We test for firm-level asset investment effects in returns by examining the cross-sectional relation between firm asset growth and subsequent stock returns. As a test variable, we use the year-on-year percentage change in total assets. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.
Number of Pages in PDF File: 54
Keywords: Firm asset growth, stock returns, market efficiency
JEL Classification: G14, G31
Date posted: July 26, 2005
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