External Financing, Growth and Stock Returns

26 Pages Posted: 20 Oct 2012

See all articles by Gikas A. Hardouvelis

Gikas A. Hardouvelis

University of Piraeus; Centre for Economic Policy Research (CEPR)

Georgios Papanastasopoulos

affiliation not provided to SSRN

Dimitrios D. Thomakos

University of Peloponnese - School of Management, Economics and Informatics; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Tao Wang

City University of New York (CUNY) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2012

Abstract

In this paper we investigate the relation of the value/growth anomaly with the anomaly on corporate financing activities. We confirm and expand earlier results that value/growth and external financing indicators are, to some degree, related predictors of stock returns in the cross section. We show that external financing indicators are incrementally informative since they pick up stock returns associated with earnings quality. Portfolios that combine information from both these indicators generate significantly higher returns than portfolios containing each individual indicator. More importantly, our analysis strongly suggests 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

Hardouvelis, Gikas A. and Papanastasopoulos, Georgios and Thomakos, Dimitrios D. and Wang, Tao, External Financing, Growth and Stock Returns (November 2012). European Financial Management, Vol. 18, Issue 5, pp. 790-815, 2012. Available at SSRN: https://ssrn.com/abstract=2164036 or http://dx.doi.org/10.1111/j.1468-036X.2012.00656.x

Gikas A. Hardouvelis (Contact Author)

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
+32010 4142323 (Phone)
+3210 6724848 (Fax)

HOME PAGE: http://www.eurobank.gr

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Georgios Papanastasopoulos

affiliation not provided to SSRN

No Address Available

Dimitrios D. Thomakos

University of Peloponnese - School of Management, Economics and Informatics ( email )

Department of Economics
22100 Tripolis
Greece
+30 2710 230139 (Fax)

HOME PAGE: http://es.uop.gr/

University of Bologna - Rimini Center for Economic Analysis (RCEA)

Via Patara, 3
Rimini (RN), RN 47900
Italy

Tao Wang

City University of New York (CUNY) - Department of Economics ( email )

65-30 Kissena Blvd
Flushing, NY 11367-1597
United States

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