Equity Financing Restrictions and the Asset Growth Effect: International vs. Asian Evidence
52 Pages Posted: 24 May 2016 Last revised: 26 Sep 2018
Date Written: August 1, 2018
This paper investigates the driver of asset growth to explain the cross-country variation of the asset growth effect. We find that institutional restrictions on equity financing constrain firms’ abilities to grow assets, and the degree of such restrictions is associated with the observed cross-country variations of the asset growth effect. Specifically, the asset growth effect is weaker in countries with more restrictions on stock issuance and buyback. In horserace tests, equity financing restrictions supersede legal system, stock market development, and information transparency in explaining the cross-country differences of the effect. We highlight our results through a comparison of two Asian countries—Korea and China—with the United States. Our results provide evidence that country financial regulations dampen certain sources of risks in asset prices.
Keywords: Asset growth; stock returns; institutional restrictions; stock issuance; buyback; international markets; Asian; Korea; China
JEL Classification: M41, G12, G15
Suggested Citation: Suggested Citation