Abstract
Recent studies have documented that, in the United States, firms that increase asset investment subsequently earn substantially lower risk-adjusted returns, which is referred to as the investment or asset growth effect. In this study, we document that there exist substantial cross-country differences in the asset growth effect. More specifically, we find a strong asset growth effect among developed countries, but no such an effect among developing countries. Further analysis indicates that, among developed countries, cross-country difference in the asset growth effect can be explained by the ease of access to equity markets in addition to country characteristics such as culture and corporate asset growth. However, the inclusion of these country characteristics does not damper the effect of the ease of access to equity markets on the asset growth effect. Our results appear to be generally consistent with an overinvestment explanation for the investment effect initiated by Titman, Wei, and Xie (2004) and to be inconsistent with the prediction by the q-theory with investment frictions suggested by Li and Zhang (2010).
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.