Authors: Lydia Diamantopoulou, Panagiotis Artikis, Georgios Papanastasopoulos

Title: Do Fictitiously High Asset Growth Rates Drive the Asset Growth Anomaly?

Abstract

This paper investigates whether the well-documented asset growth anomaly can be related to distortions in the accounting information provided to investors in European capital markets. Our evidence suggests that the asset growth anomaly is more pronounced among high asset growth firms that manipulate their earnings. Furthermore, our empirical findings suggest that investors do not assess properly the information captured by asset growth rate conditional on firms’ fundamental strength and that this misvaluation in more pronounced under the presence of high asset growth manipulator firms. This finding reveals that high asset growth firms are more overvalued when their high asset growth rates are fictitiously high. Overall, our evidence suggests that the asset growth anomaly on subsequent stock returns can actually be driven by high asset growth firms, manipulating their accounting figures.