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Research On The Asset Growth Effect Of Chinese Stock Market

Posted on:2016-12-11Degree:DoctorType:Dissertation
Country:ChinaCandidate:L F ZhangFull Text:PDF
GTID:1109330482450515Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
Finance is the core of the economy, and as an important part of the financial systems, the stock market plays an increasingly important role for economic development, so it has attracted much attention. In recent years, more and more scholars are researching the impact of changes of the company’s assets on stock returns, and the asset growth effect has become a hot issue. The Chinese stock market following the national finances and banks, is the third channel to provide funds to state-owned enterprises, and it is also the product of the economic reform during the transition which takes modernization as the goal. Along with the deepening of the economic reform, the national economy has achieved rapid development, and the stock market is gradually developing and expanding. Complying with the pace of the reform of State-owned enterprises, the listed companies continue to adjust their development strategies, and mergers & acquisitions frequently take place. In order to achieve the transformation and development, the listed companies continue to issue shares, or apply for loans to expand their investment scale and field, resulting in the rapid expansion of the company’s asset. Therefore, under the background of vigorous development of the national economy and the transformation and development of the listed companies, the study of the asset growth effect is more representative and has more practical significance.Relying on economics of money and finance、new institutional economics and behavioral finance theory, this paper uses logical reasoning method、mathmatical analysis method and comprative study method to make a normative and empirical study of the asset growth effects in Chinese stock market, and proposes some conclusions that have theoretical and practical significance for the development of Chinese stock market.Despite the asset growth effect is a common anomaly in foreign financial markets, the research on the asset growth effect of Chinese stock market is few and the conclusion has many differences. Therefore, this article starts from whether the asset growth effect exists in Chinese stock market. The study finds that although there are a variety of asset growth measures, it is unable to determine which can be used as the representative measure of the asset growth. To this end, this paper proposes a new asset growth measure-the operating asset growth, and compares it empiricaly with others. The results show that the operating asset growth excludes noising growth components and integrates with as much as possible asset components which is negatively related to the future stock returns, so it is the most representative measure of the asset growth. On this basis,the study also finds that there is a significant negative correlation between the listed company’s asset growth and stock returns, that is to say there is a significant asset growth effect in Chinese stock market.The existence of the asset growth effect implies the relatively low effectiveness of Chinese stock market, but the pursuit of efficiency is the core issue of the stock market development, so this study focuses on the analysis of the reasons for the asset growth effect deeply. The stock market in brief is a stock issuing and circulating space, but it is essentially a financial intermediating market for demanders and suppliers of funds. The driving force of the emergence and development of the stock market is to reduce the information asymmetry between the suppliers and the demanders of funds, this means that the development and evolution of the stock market are carried out around the two main participators, so the asset growth effect is not only related to the listed companies but also related to the investors and the interactions between them.In many activities of the listed company, the investment is one of the most important activities, but it relies on the manager’s decisions. The establishment of the modem enterprise system achieves the separation of ownership and management rights of enterprise, but the utility function of the manager and that of the shareholder is often inconsistent. In order to maximize the benefits, the manager tends to invest massively, and even invests in some of the project with negative NPV, resulting in overinvestment. However, the investors can not make correct judgments for this and tend to underestimate the desire of the manager to build empire, leading to the existence of asset growth effect. The empirical results also show that there is a significant negative correlation between the asset growth of the and stock returns for overinvestment company, but the correlation between the asset growth and stock return is not significant for insufficient investment company, so overinvestmnet is the main reason of the exsistence of the asset growth effect. In order to coordinate the relationship between the manager and the sharehoider, the listed company gradually improves the corporate governance strcture, and the good institutional arragements prompt the manager’s decision of investment more scientific, so the overinvestment is reduced and the asset growth effect of stock market becomes weaker. The empirical results show that the negative correlation between the asset growth and stock returns is not significant for company owning the high levels of governance, but the negative correlation between the asset growth and stock returns is significant for company owning the low levels of governance, so perfecting the corporate governance strcture and improving the corporate governance are the fundamental of the gradual elimination of the asset growth effect and the improvement of effectiveness of stock market.The overinvestment leads to the growth of the company’s asset, because of the cognitive bias, when they valuate the stock, the investors tend to excessively extrapolate the company’s past performance, so they will overreact to the impact of the asset growth on the company’s future earnings and lead to the presence of market mispricing.The empirical results also show that the investors’ overreaction leads to the overvaluation of highest asset growth portfolio and the undervaluation of the lowest asset growth portfolio. Although the mispricing of stock market creates an attractive investment opportunity for arbitrageurs, the market is full of friction. The arbitrage risk and cost restrict the arbitrage trading, so limited arbitrage delays the process of the correcting of market mispricing, resulting in the longer exsistence of asset growth effect. The empirical results show that the arbitrage risk measured by idiosyncratic volatility and the arbitrage cost measured by bid-ask spread and price impact have ability to explain the asset growth effect, so the overreation of the investors and the limited arbitrage lead to the persentence of the asset growth effect.Stock market is the game sites for the listed company and the investors. On one hand, the manager’s overinvestment leads to the growth of company’s asset and the investors’overreaction to the impact of the asset growth on company’s future earnings cause the stock price deviating from its value, but the arbitrage risk and cost restrict the arbitrage trading, so limited arbitrage delays the process of the correcting of market mispricing and leads to the longer exsistence of asset growth effect. On the other hand, the irrational behavior of the investors causes the stock price deviating from its value, then the manager will take advantage of this mispricing to change the investment strategies to cater the investor’s sentiment, so the stock price moves further away from its value and the asset growth effect is more significant. In conclusion, the asset growth effect generates from the listed company、the investors and the process of their interaction. In order to gradually eliminate the effect of the asset growth and improve the effectiveness of chinese stock market, we must take the following measures. Firstly, we should improve the corporate governance structure of the listed company to improve investment efficiency; Secondly, we should strive to foster institutional investors and regulate the behavior of investors to prompt market transactions more rational; Finally, we should strengthen financial supervision and improve the transparency of the imformation to reduce friction of market transaction.
Keywords/Search Tags:Asset growth effect, Operating asset growth, Overinvestment, Arbitrage restrictions
PDF Full Text Request
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