We study the effect of growth in firms’ balance sheets on stock returns by decomposing asset growth into two components, one that captures real investment growth and one that captures accounting distortions and/or reduced efficiency. We show that these components play significant and...

The present paper provides insights about the well-documented asset growth anomaly using an integrated European stock market sample from 21 countries. We seek to assess whether the anomaly in Europe can be attributed to risk or mispricing. In doing so, we examine whether the asset growth effect...