اثر رشد دارایی: نکاتی درباره بازارهای سرمایه بین المللی
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|12572||2013||35 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 108, Issue 2, May 2013, Pages 529–563
Firms with higher asset growth rates subsequently experience lower stock returns in international equity markets, consistent with the U.S. evidence. This negative effect of asset growth on returns is stronger in more developed capital markets and markets where stocks are more efficiently priced, but is unrelated to country characteristics representing limits to arbitrage, investor protection, and accounting quality. The evidence suggests that the cross-sectional relation between asset growth and stock return is more likely due to an optimal investment effect than due to overinvestment, market timing, or other forms of mispricing.
It has been documented that firms experiencing rapid growth by raising external financing and making capital investments subsequently have low stock returns, whereas firms experiencing contraction via divestiture, share repurchase, and debt retirement enjoy high future returns.1Cooper, Gulen, and Schill (2008) summarize the synergistic effect of firms' investment and financing activities by creating a simple measure of total asset growth. They show that in the United States during the period from 1968 to 2003, a value-weighted portfolio of stocks in the top asset-growth decile underperforms the portfolio of stocks in the bottom decile by 13% per year, and such cross-sectional return difference cannot be explained by standard asset pricing models. One of the most actively debated issues in the current finance literature is whether the negative effect of investment and financing on stock returns, as highlighted by the asset growth effect, is evidence of market inefficiency or can be viewed as a rational asset pricing result. From the behavioral camp, several mispricing-based explanations have been proposed. These explanations include (1) overinvestment and empire-building tendency of corporate managers (e.g., Titman, Wei, and Xie, 2004), (2) capital structure market timing when raising and retiring external financing (e.g., Baker and Wurgler, 2002), (3) earnings management prior to financing activities or acquisitions (e.g., Teoh et al., 1998a and Teoh et al., 1998b), and (4) excessive extrapolation on past growth by investors when they value firms (e.g., Lakonishok, Shleifer, and Vishny, 1994). From the rational asset pricing camp, the explanations center around the association between investment and expected return, albeit with some variations. For example, Cochrane, 1991 and Cochrane, 1996 and Liu, Whited, and Zhang (2009) study the discount rate effect of investments, i.e., firms making large investments are likely to be those with low discount rates. In Lyandres, Sun, and Zhang (2008) and Li, Livdan, and Zhang (2009), higher investments are associated with lower expected returns via both decreasing return to scale and the discount rate effect. Berk, Green, and Naik (1999) and Carlson, Fisher, and Giammarino (2004) further argue that firms have reduced risk and expected return after growth options are exercised through capital investments.2 It is difficult to empirically distinguish the mispricing hypothesis from the optimal investment hypothesis, because they offer similar predictions on the relation of corporate investments with both future stock returns and firms' future operating performance. To address this issue, recent studies have focused on conditional evidence in the U.S. by examining the effect of investment or financing on stock returns during subperiods or in subsamples of stocks. Titman, Wei, and Xie (2004) find that the negative investment-return relation is stronger among firms with greater managerial investment discretion, and is significant only during periods when external corporate governance is weak. Cooper, Gulen, and Schill (2008) similarly show that the asset growth effect on stock returns weakens during periods of heightened external corporate oversight, but becomes stronger following higher market returns when investor sentiment is stronger. In addition, Lipson, Mortal, and Schill (2011) show that the asset growth effect is greater among stocks with higher arbitrage costs measured by idiosyncratic return volatility. While these studies favor mispricing-based interpretations, Li and Zhang (2010) point out that in the q-theory model of corporate investment, the investment-return linkage should be stronger among firms facing higher investment and financing frictions. Empirically, they find relatively weak evidence for this prediction using various proxies for investments, investment frictions, and arbitrage costs. However, using a more comprehensive set of arbitrage cost measures, Lam and Wei (2011) report that the investment friction effect and the limits to arbitrage effect are supported by a similar amount of evidence. This study investigates the asset growth effect in international stock markets.3 We have two goals. The first is to examine whether the negative relation between asset growth and future stock returns exists in financial markets outside the U.S. An affirmative answer would alleviate the concern that the empirical pattern documented in the U.S. is due to chance or data-snooping. Second, we use the international data to evaluate the plausible economic causes of the asset growth effect. Our approach builds upon Li and Zhang (2010) and Lam and Wei (2011), but the large variation in the asset growth effect across countries and the large dispersion of country characteristics enable us to perform a new set of tests for evaluating competing theories. Using the Datastream-Worldscope data spanning the period from 1982 to 2010, we find evidence of a significant asset growth effect in the international equity markets. When we pool stocks across 42 countries outside the U.S. and sort them into equal-weighted decile portfolios based on annual asset growth rates (AG), the bottom AG decile outperforms the top decile by a significant 6.43% in the following year. When we form equal-weighted AG-sorted portfolios within each of the 42 countries, the return spread between the bottom and top AG portfolios, averaged across countries, is also significantly positive at 3.50% per year. The return-predictive power of asset growth remains significant after controlling for size, book-to-market, momentum, and operating profitability. We also find that the magnitude of the asset growth effect varies substantially across countries. For example, the equal-weighted annual return spreads between the bottom and top AG portfolios formed within each country range from −11% to 11%. The return spreads are positive in 30 countries (including the U.S.) but negative in 13 countries. Such cross-country divergence provides a rich ground for testing various hypotheses on the cause of the asset growth effect. Our cross-country analysis centers around two contrasting ideas that link the asset growth effect to various country characteristics in opposite ways. First, if the asset growth effect is due to mispricing, one would expect it to be stronger in countries where stocks are less efficiently priced and in countries where mispricing is difficult to arbitrage away. Further, if managerial empire-building, capital structure market timing, or accounting manipulation is behind the asset growth anomaly, one would expect this effect to be weaker in countries with stronger corporate governance, better investor protection, and less room for accounting manipulation. Second, if the asset growth effect is driven by optimal corporate investment decisions, one would expect this effect to be stronger in markets where stocks are more efficiently priced (i.e., prices staying closer to the fundamental values and the expected returns exhibiting closer relation with risks). Based on these ideas, we formulate three hypotheses and investigate them empirically. The first hypothesis we examine is on the relation between market efficiency and the asset growth effect. The optimal investment explanation suggests that the AG effect should be stronger among countries where stocks are more efficiently priced, whereas the mispricing explanation suggests the opposite. We consider four country-level proxies for the efficiency of a financial market. The first is Morck, Yeung, and Yu's (2000) stock return synchronicity (R2), which is negatively related to the amount of firm-specific information incorporated into individual stock prices. To compute R2, we regress weekly individual stock returns on the contemporaneous weekly market returns as well as two leads and two lags of the weekly market returns, and then take the average R-squared from the firm-level regressions within each country. The second is the future earnings response coefficient (FERC) developed in the accounting literature (e.g., Collins, Kothari, Shanken, and Sloan, 1994), which captures the extent to which stock price reflects information about future corporate earnings. The stock-level FERC is calculated as the sum of three coefficients on future earnings changes, which we obtain by regressing the firm's annual stock returns on its current year's earnings change, three leads of its annual earnings changes, and three leads of its annual stock returns. The country-level FERC is then given by the mean of the FERC estimates across all firms in the country. We use the developed-market status (DEV) provided by the International Finance Corporation as our third market efficiency proxy, in order to capture the idea that developed stock markets tend to be more informationally efficient than emerging ones. Following LaPorta, Lopez-de-Silanes, Shleifer, and Vishny (1997), our fourth variable, MKT, measures the importance of stock market to the economy. MKT is computed as the sum of cross-country rankings on the following three variables—the ratio of total stock market capitalization to the Gross Domestic Product (GDP), the number of publicly listed companies scaled by the population, and the number of initial public offerings (IPOs) scaled by the population. To quantify the magnitude of the asset growth effect in each country, we consider both the return spread (SPREAD) between the extreme AG portfolios and the slope coefficient (SLOPE) from the cross-sectional regression of stock returns on asset growth rates. Both equal-weighted and value-weighted versions of SPREAD and SLOPE are examined. Based on these measures, we find that the AG effect is stronger in countries with lower stock return synchronicity and higher future earnings response coefficients, in developed markets, and in economies where stock markets play a more important role. These results suggest that the return-predictive power of AG is stronger in countries with more efficient stock markets. Such evidence is supportive of the optimal investment explanation but is difficult to reconcile with the mispricing explanation. We further examine the role of market efficiency in explaining the AG effect under a specific q-theory prediction. Several recent studies (e.g., Chen, Novy-Marx, and Zhang, 2011) emphasize that the investment-return relation is conditional on firm profitability. We therefore construct alternative measures of country-level asset growth effect using portfolio sorts and regressions that control for firm-level return on equity. We find that even if we use these alternative measures, the four proxies for market efficiency continue to exhibit strong power to explain the cross-country difference in the AG effect. The second hypothesis we investigate is on the effect of limits to arbitrage. If the asset growth effect is due to mispricing, it should be stronger when mispricing is difficult to arbitrage away. Consistent with this hypothesis, Li and Zhang (2010), Lam and Wei (2011), and Lipson, Mortal, and Schill (2011) find that the asset growth effect in the U.S. is stronger among stocks with higher trading frictions. We evaluate this effect at the country level based on three measures of trading frictions, namely, the average idiosyncratic return volatility (IRISK, residual standard deviations when regressing daily individual stock returns onto market returns), the average stock liquidity (DVOL, dollar trading volume), and an indicator for short-sale permission (SHORT). In sharp contrast with the U.S. evidence from the existing studies, we find that the cross-country relation between the limits to arbitrage proxies and the AG effect is relatively weak. Only idiosyncratic return volatility IRISK exhibits some marginal explanatory power, while DVOL and SHORT always have an insignificant effect. Our results therefore suggest that the stock-level U.S. evidence in favor of the costly arbitrage explanation cannot be generalized to account for the cross-country difference in the asset growth effect. The third hypothesis we investigate is directly related to the potential causes of the asset growth effect under the mispricing explanation. Existing studies have identified several sources of mispricing associated with asset growth, such as firms' overinvestment tendency, opportunistic financing behavior, and earnings management practices. Under these explanations, the asset growth effect on stock return should be stronger among countries with less investor protection and lower accounting quality. Motivated by the law and finance literature, we consider four country-level proxies for investor protection. First, following the idea of LaPorta, Lopez-de-Silanes, Shleifer, and Vishny (2000) that legal origin matters for investor protection and corporate governance, we classify countries into English, French, German, and Scandinavian legal origins. Second, we adopt the La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998) measure of creditor rights index (CR), which is based on various aspects of legal protection on the rights of secured lenders in a country. Third, we use the revised anti-director rights index (AD) constructed by Djankov, McLiesh, and Shleifer (2007), which measures the protection of minority shareholders against expropriation by controlling shareholders. Fourth, the anti-self-dealing index (AS) is from Djankov, LaPorta, Lopez-de-Silanes, and Shleifer (2008) and captures the protection of outside investors against self-dealing by the controlling shareholders. We further follow the existing literature to construct two country-level proxies for the quality of accounting information. The first is the accounting quality index (ACCT) of LaPorta, Lopez-de-Silanes, Shleifer, and Vishny (1998) based on the reporting or omission of 90 items in corporate financial reporting. The second, earnings management score (EMS), is developed by Leuz, Nanda, and Wysocki (2003) to quantify the discretion by corporate insiders in managing reported earnings. However, from the cross-country regression analysis incorporating this extensive list of proxies, we find quite weak and sometimes conflicting evidence for the hypothesis that investor protection and accounting quality reduce the magnitude of the AG effect. In sum, our paper documents the existence of the asset growth effect in international stock markets and provides informative evidence to assess different hypotheses regarding this effect. As such, our study joins the expanding literature (e.g., McLean, Pontiff, and Watanabe, 2009; Hou, Karolyi, and Kho, 2011) that looks at international evidence for various forms of stock return predictability originally documented in the U.S. Our study also adds to the literature that attempts to disentangle competing explanations for the asset growth effect based on the U.S. data, e.g., Li and Zhang (2010), Lam and Wei (2011), and Lipson, Mortal, and Schill (2011). Relative to these studies, our incremental contribution is to take advantage of the wide dispersion in the asset growth effect across countries and offer a fresh set of perspectives. In particular, the international data enable us to examine the two hypotheses that have not been considered by the existing studies, namely, the effect of information efficiency and the effect of investor protection and accounting quality. In a contemporaneous study, Titman, Wei, and Xie (2011) show that access to external financing is an important determinant of the magnitude of the asset growth effect within the developed markets. Relative to their study, our analysis includes a more comprehensive set of country characteristics and covers both the developed and emerging markets. Overall, our study provides more supportive evidence for the optimal investment explanation than for the mispricing-based explanation. The remainder of the paper is organized as follows. Section 2 discusses the competing explanations of the asset growth effect and outlines testable hypotheses. Section 3 describes the data and provides evidence on the existence of the asset growth effect in international markets. Section 4 evaluates the hypotheses by analyzing the relation between country characteristics and the asset growth effect. Section 5 concludes.
نتیجه گیری انگلیسی
The existing literature documents a negative relation of firms' investment and financing activities with future stock returns. For example, Cooper, Gulen, and Schill (2008) show that U.S. firms with lower asset growth rates tend to have higher subsequent stock returns. However, there is a debate on whether such an empirical pattern is the result of market mispricing or can be viewed as an optimal corporate investment effect. Our study finds that the asset growth effect originally documented in the U.S. also exists in international equity markets. In addition, we provide informative evidence that allows us to evaluate the optimal investment explanation of the asset growth effect vis-à-vis the mispricing-based explanation. Across the 43 equity markets we examine, there are large differences in the asset growth effect and in various measures of market efficiency, trading frictions, investor protection, and accounting quality. The competing hypotheses predict that these country characteristics are related to the magnitude of the asset growth effect in different ways. Empirically, we find that the country characteristics possessing the strongest power to explain the magnitude of the asset growth effects are those related to market efficiency—the asset growth effect is stronger in markets that are more informationally efficient. On the other hand, the country characteristics representing limits to arbitrage, investor protection, and accounting quality have limited power to explain the variation of the asset growth effect across international markets.