The effect of asset growth on stock return of Taiwan firms
Date Issued
2009
Date
2009
Author(s)
Kuo, Pin-Shao
Abstract
Numerous past researches have been focused on average stock returns that are not explained by the Capital Asset Pricing Model (CAPM) as they provided what variables explain the cross-section of stock returns. This topic is important in that it has great implication on equity investment and corporate finance. The subject of this study is an empirical investigation of introducing a fairly new measure, asset growth, into explaining the cross-section of stock returns in Taiwan.his study uses financial data of Taiwan listed firms from 1995 through 2008 to examine asset growth together with the previously documented determinants and growth-rate related variables of the cross-sectional returns. Asset growth is then decomposed in terms of investment and financing components respectively, in order to find out whether growth in the various subcomponents of asset growth uniformly shows a negative return effect and which component exhibits the strongest effect.he empirical results support asset growth does follow by negative returns, but the ability to explain cross-sectional stock return is weaker than book-to-market equity and momentum. When considering asset growth with other growth-rate related variables, the effect of asset growth on negative return is weakened to accruals. The results for asset decomposition indicate various subcomponents of asset growth don’t uniformly exhibits a negative return effect, thus demonstrating why asset growth is not the best determinant in explaining cross-sectional returns in Taiwan.
Subjects
Stock return
Asset growth
Type
thesis
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