Asset Growth and the Cross-Section of Stock Returns

54 Pages Posted: 26 Jul 2005  

Michael J. Cooper

University of Utah - David Eccles School of Business

Huseyin Gulen

Purdue University - Krannert School of Management

Michael J. Schill

University of Virginia ­ Darden School of Business

Date Written: July 10, 2007

Abstract

We test for firm-level asset investment effects in returns by examining the cross-sectional relation between firm asset growth and subsequent stock returns. As a test variable, we use the year-on-year percentage change in total assets. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.

Keywords: Firm asset growth, stock returns, market efficiency

JEL Classification: G14, G31

Suggested Citation

Cooper, Michael J. and Gulen, Huseyin and Schill, Michael J., Asset Growth and the Cross-Section of Stock Returns (July 10, 2007). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=760967 or http://dx.doi.org/10.2139/ssrn.760967

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Huseyin Gulen

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Michael J. Schill

University of Virginia ­ Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm

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