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Journal of Banking & Finance Vol. 49 2014

The q-theory explanation for the external financing effect: New evidence

Yuan Huang1; F. Y. Eric C. Lam2; K. C. John Wei3

1 Hong Kong Polytechnic University · 2 Hong Kong Baptist University · 3 Hong Kong University of Science and Technology

Abstract

Several studies document a robust negative association between net external financing and average stock returns, which is referred to as the external financing effect. Using total asset growth as a comprehensive measure of overall corporate investment and total profitability gross of R&D expenditures as a measure of true economic profitability, we provide new evidence in support of the q-theory explanation for the external financing effect. We also test the market timing explanation for the external financing effect but fail to document supportive evidence.

DOI
10.1016/j.jbankfin.2014.08.010
Volume
49
Pages
69-81
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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