Document Type

Journal Article

Department/Unit

Department of Finance and Decision Sciences

Title

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

Language

English

Abstract

© 2014 Elsevier B.V. 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.

Keywords

Cross-section of stock returns, External financing, Q-Theory of investment, R&D, Total asset growth, Total profitability

Publication Date

2014

Source Publication Title

Journal of Banking and Finance

Volume

49

Start Page

69

End Page

81

Publisher

Elsevier

DOI

10.1016/j.jbankfin.2014.08.010

ISSN (print)

03784266

ISSN (electronic)

18726372

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