External Financing, Growth and Stock Returns
European Financial Management, vol. 18, pp. 790-815, 2012
Posted: 17 Jul 2008 Last revised: 31 May 2017
Date Written: January 13, 2010
In this paper we investigate the relation of the value/growth anomaly with the anomaly on corporate financing activities. We find that value/growth and external financing indicators could be related in capturing stock returns attributable to sales growth. However, external financing indicators could be incrementally informative since they also pick up stock returns associated with earnings quality. Portfolios that combine information from both these indicators generate significantly higher returns than those containing each individual indicator. It appears that the external financing anomaly is to some extent distinct from the value/growth anomaly, in that it may also reflect investors' misunderstanding of the effects of opportunistic earnings management.
Keywords: Corporate financing activities, value/growth, earnings quality, stock returns
JEL Classification: G10, M4
Suggested Citation: Suggested Citation