Dissecting the Asset Growth Anomaly

36 Pages Posted: 4 Dec 2014

See all articles by Fangjian Fu

Fangjian Fu

Singapore Management University - Lee Kong Chian School of Business

Date Written: July 3, 2014


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

JEL Classification: G11, G12

Suggested Citation

Fu, Fangjian, Dissecting the Asset Growth Anomaly (July 3, 2014). Available at SSRN: https://ssrn.com/abstract=2533316 or http://dx.doi.org/10.2139/ssrn.2533316

Fangjian Fu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899

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