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National cultures and the asset growth effect

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  • Robin K. Chou
  • Kuan-Cheng Ko
  • S. Ghon Rhee

Abstract

- National cultures significantly explain cross-country differences in the relation between asset growth and stock returns. Motivated by the notion that managers in individualistic and low uncertainty-avoiding cultures have a higher tendency to overinvest, this study aims to show that the negative relation between asset growth and stock returns is stronger in countries with such cultural features. Once the researchers control for cultural dimensions, proxies associated with the q-theory, limits-to-arbitrage, corporate governance, investor protection and accounting quality provide no incremental power for the relation between asset growth and stock returns across countries. Evidence of this study highlights the importance of the overinvestment hypothesis in explaining the asset growth anomaly around the world.

Suggested Citation

  • Robin K. Chou & Kuan-Cheng Ko & S. Ghon Rhee, 2023. "National cultures and the asset growth effect," Journal of Derivatives and Quantitative Studies: 선물연구, Emerald Group Publishing Limited, vol. 31(4), pages 278-308, September.
    • Handle: RePEc:eme:jdqspp:jdqs-12-2022-0028
    DOI: 10.1108/JDQS-12-2022-0028
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    More about this item

    Keywords

    Asset growth; Individualism; Uncertainty avoidance; Overinvestment; International equity markets; G12; G14; G15;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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