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Access to Equity Markets, Corporate Access to Equity Markets, Corporate Investments and Stock Returns: Investments and Stock Returns: International EvidenceInternational Evidence

Sheridan Titman, K.C. John Wei, and Feixue XieSheridan Titman, K.C. John Wei, and Feixue Xie

Discussant:Discussant:

Yanzhi (Andrew) WangYanzhi (Andrew) Wang

At 2010 NTU International At 2010 NTU International ConferenceConference

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Summary

• This paper documents that there exist substantial cross-country differences in the asset growth effect. They find a strong asset growth effect among 26 developed countries, but no such an effect among 14 developing countries.

• Among developed countries, cross-country difference in the asset growth effect can be explained by the ease of access to equity markets.

• The results appear to be generally consistent with an overinvestment explanation for the investment effect initiated by Titman, Wei, and Xie (2004).

• The result of this paper is inconsistent with the prediction by the q-theory with investment frictions suggested by Li and Zhang (2010).

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General Comment

• This paper studies a hot issue, the firm growth, in recent years. This idea is convincing and interesting. All results are consistent and sophisticated. I really enjoy reading this paper and learn a lot from the authors.

• The international study is a hard work. The authors take care of every detail of the cross-country data. This does impress me!

• I expect to see this paper published in a top-tier journal.

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Asset growth and risk change

• While the asset of a firm grows, it indicates the firm being mature. The process of being mature results in a decrease in risk for this asset growth firm. So, is the low return of high asset growth driven by the decrease in risk?

• We are probably able to adopt the market model with time-varying risk to calculate the abnormal return (Petkova and Zhang, 2005, JFE).

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Time-series analysis on asset growth

• Some of developed countries were previously developing ones (Taiwan, Korea for example).

• Did they have asset growth effect in their early years? If yes, then they will be good samples to demonstrate the asset growth effect and an economy evolution.

• In Table 5, what happens if we sort stocks by country-year country characteristics (or we do not have such a panel data?)

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Asset growth and merger

• Asset growth is associated with the merger and acquisition activities. Chan, Karceski, Lakonishok and Sougiannis (2008), an NBER working paper, suggest that issue. It is indeed the case that 55 percent of the firms categorized in the top decile by asset growth are involved in acquisition activity in the ranking year. These firms tend to have weak returns in the following years: mean abnormal returns are -8.77 percent in the first subsequent year and -6.23 percent in the second year.

• Yet, the global merger database might be unavailable.

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Aggregate asset growth

• Just curious… What if we look at the aggregate asset growth for an industry or a country? In accrual effect, Hirshleifer, Hou and Teoh (2009)_JFE suggest a positive aggregate accrual effect. I am curious about whether we will have a positive asset growth effect there.

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The last table…

• Could we add the interacting term over country characteristic and asset growth?– Probably we cannot do so in the country level

regression– If yes, is the power enough to reject null?