National cultures and the asset growth effect

Robin K. Chou, Kuan-Cheng Ko and S. Ghon Rhee

Journal of Derivatives and Quantitative Studies: 선물연구, 2023, vol. 31, issue 4, 278-308

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.

Keywords: Asset growth; Individualism; Uncertainty avoidance; Overinvestment; International equity markets; G12; G14; G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jdqspp:jdqs-12-2022-0028

DOI: 10.1108/JDQS-12-2022-0028

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