Lower Asset Growth Research Articles

Short-Sale Constraints and Corporate Investment

AbstractIn a sample of non-U.S. regulatory regime shifts, we find that expanded short selling is associated with stock price declines, reductions in capital expenditure, and lower asset growth. In a reversal of results found for U.S. stocks in a study of Regulation SHO by Grullon, Michenaud, and Weston (2015), our results are stronger for large firms than for small firms. We also show that this investment effect is stronger for firms that previously relied on outside financing. Our results suggest that short-sale policies affect corporate investment and that this effect is not driven by capital constraints.

Dividend payout policy of Shariah compliant firms: Evidence from United States

This paper investigates the effects of religious screening on payout behavior of US firms. Shariah compliant (SC) indices serve as suitable sample as they are emerging as alternative investment class in the last two decades. Through an analysis of a sample of US firms belonging to Dow Jones proprietary database for the period 2006–2018, this study provides evidence that SC firms are more prone to make total payout, cash dividends and repurchases. We use panel logistic regressions with industry and year fixed effects. The findings reveal that the drivers of higher propensity of total payout are higher profitability, higher retained earnings, lower debt capital structure and lower asset growth. The factors that contribute to likelihood of paying higher cash dividends are higher profitability, lower governance levels and lower market/book assets ratio. Moreover, better governance, lower asset growth and lower equity/assets increase the propensity of SC firms to make higher repurchases. These findings are important contribution to the Islamic corporate finance and dividend policy literature.

Does Debt Explain the Investment Premium?

The investment premium -- the finding that firms with low asset growth deliver high average returns -- is an integral part of recent factor models. I document empirically that the investment premium (1) reflects leverage, (2) does not exist among zero-leverage firms, and (3) increases with firms' refinancing intensities. This new evidence challenges prominent explanations of the investment premium including the q-theory of investment and behavioral finance. To explain the evidence, I develop a model in which firms make both optimal investment and financing decisions. The model shows that the investment premium reflects both leverage and refinancing intensities consistent with my empirical findings.

Analysis on the effects of government ownership on efficiency of Chinese commercial banks

This study, targeting the data of 75 Chinese commercial banks (2003-2016), verified the effects of government ownership on efficiency of banks by applying stochastic frontier approach (SFA). The main results of the empirical analysis are as follows. First, as a result of the analysis using stochastic frontier model, high capital ratio, low loan-loss reserve ratio, and low cost to income ratio had positive effects on profitability of banks. Net loan ratio had positive effects on profitability of only joint-stock commercial banks (JSCBs). Second, as a result of verifying efficiency determinants of banks, low government ownership, listed banks, and high asset growth rate and operating profit per employee had positive effects on efficiency of banks. The study results indicate that the inflow of private capital into Chinese commercial banks lowers government ownership, improving governing structure and efficiency through enhancement of supervisory function.

Inflation illusion and stock returns

A large sensitivity of stocks' earnings yield to inflation suggests that the value of these stocks is highly influenced by inflation illusion. We construct an inflation illusion factor by buying stocks with large earnings yield sensitivities on inflation and selling stocks with small earnings yield sensitivities on inflation. This factor has a return of approximately 5% per year and is priced in the cross sectional asset returns. Low asset growth stocks have greater exposure to the inflation illusion factor than their counterparts, and they are also underpriced at times of high inflation. Our results are robust for a number of controls.

Country-level antecedents of target firms’ post-acquisition business performance: A study of inbound Japanese and Korean M&As

In contrast to most previous studies on cross-border M&A performance, which have focused on financial outcomes for acquiring firms, we examine the post-acquisition business performance of target firms. For 109 Japanese and South Korean acquisition targets, we find negative effects of managerial distance on target firms’ post-acquisition return-on-assets (ROA) development and of cultural distance on their asset growth. Furthermore, firms acquired by emerging-market multinationals recorded relatively higher ROA development and lower asset growth than other target firms. Our findings suggest that multiple performance dimensions should be considered to assess the outcomes of international M&As accurately.

General Purpose Technologies and Stock Returns

We propose that the growth in general purpose technologies – a class of technologies that have pervasive impact on the entire economy – serves as non-diversifiable technology risk in asset pricing. Using the U.S. patent data from 1963 to 2006, we construct a general purpose technology factor. We find that this factor predicts future consumption growth and industrial production growth, and explains the cross section of stock returns. Value stocks, small stocks, high earnings-price ratio stocks, low prior return reversal stocks, and low asset growth stocks exhibit higher betas on the general purpose technology factor. We further provide international evidence that general purpose technology risks are priced in global and regional portfolios. JEL Classification: G12, O33

Factors Associated with Bank Deregistration Following the 2012 Jobs Act

The 2012 JOBS Act increases the deregistration threshold for banks from 300 to 1200 shareholders of record. Our purpose is to understand whether the banks’ deregistration decision reflects an effort by slow growing banks to reduce excess compliance costs and/or whether the decision is associated with an attempt by corporate insiders to increase private benefits. The Act permits a set of banks to deregister with minimal transition costs and can thereby encourage deregistrations in the pursuit of limited private benefits. We find post-JOBS Act deregistrations differ from prior deregistrations. Unlike prior deregistrations, banks that deregister after the JOBS Act do not display a significant reduction in shareholders immediately prior to deregistration. Moreover, banks deregistering after the Act have significantly lower institutional ownership, more insider trading and insider loans, and do not display significantly lower asset growth. In contrast to positive returns during pre-JOBS Act deregistration announcements, announcement returns for post-JOBS Act deregistrations are insignificant. By reducing the costs of deregistration, our results suggest the Act allowed banks to capture private benefits while increasing the attractiveness of deregistration for higher growth banks.

The Asset Growth Effect in Stock Returns

We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium of 20% per year over high asset growth stocks. The asset growth return premium begins in January following the measurement year and persists for up to five years. The firm asset growth rate maintains an economically and statistically important ability to forecast returns in both large capitalization and small capitalization stocks. In the cross-section of stock returns, the asset growth rate maintains large explanatory power with respect to other previously documented determinants of the cross-section of returns (i.e., size, prior returns, book-to-market ratios). We conclude that risk-based explanations have some difficulty in explaining such a large and consistent return premium.

Investment and the behavioral theory of the firm: evidence from shipbuilding

Investment in production assets is a strategic decision that results from organizational search and risk taking. The behavioral theory of the firm predicts that performance below the aspiration level and slack resources initiate organizational search. Risk theory predicts that performance below the aspiration level increases risk tolerance. This paper integrates these theories to form a theory of problem- and slack-driven strategic change and applies it to the growth of production assets. The predictions are tested by analyzing the growth of production assets in the Japanese shipbuilding industry, yielding clear evidence that high performance causes low asset growth, but no effect of slack. Copyright 2003, Oxford University Press.