The total asset growth anomaly: is it incremental to the net operating asset growth anomaly?

I find that the total asset (TA) growth anomaly (Cooper et al. 2008) is a noisy manifestation of the net operating asset (NOA) growth anomaly documented earlier in the accounting literature. To better understand the underlying causes of the growth anomalies, I decompose TA growth into NOA growth and two additional components. Out of the three components, the TA growth anomaly appears to be driven only by the market’s misunderstanding of NOA growth’s negative implications for future profitability. The two additional components fail to predict future abnormal returns and, in fact, substantially dilute the predictability of NOA growth. This study suggests that it is not sufficient to decompose asset growth only by asset types or liability types in order to capture the differential implications of asset growth components. It is important for us to further decompose asset growth by financing sources within a given type of assets. This decomposition allows us to consider the interaction between asset types and liability types and to bridge the “left” side and the “right” side of balance sheet in financial statement analysis.