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

Abstract

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

Huang, Alan G. and Sun, Kevin Jialin, Equity Financing Restrictions and the Asset Growth Effect: International vs. Asian Evidence (August 1, 2018). Pacific-Basin Finance Journal. Available at SSRN: https://ssrn.com/abstract=2783558 or http://dx.doi.org/10.2139/ssrn.2783558

Alan G. Huang (Contact Author)

University of Waterloo ( email )

School of Accounting and Finance
Waterloo, Ontario N2L 3G1
Canada
519-888 4567 ext. 36770 (Phone)

Kevin Jialin Sun

St. John's University ( email )

8000 Utopia Parkway
Queens, NY 11439
United States

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