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SUSTAINABLE GROWTH AND STOCK RETURNS
Author(s) -
Lockwood Larry,
Prombutr Wikrom
Publication year - 2010
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2010.01281.x
Subject(s) - sustainable growth rate , economics , stock (firearms) , growth stock , capital asset pricing model , profit margin , monetary economics , stock market , margin (machine learning) , financial economics , finance , stock market bubble , biology , mechanical engineering , paleontology , horse , machine learning , computer science , engineering
We examine relations between sustainable growth and stock returns over 1964–2007. Findings indicate that high sustainable growth firms tend to have low default risk, low book‐to‐market ratios, and low subsequent returns. Of the four sustainable growth components, we find that the net profit margin is the major determinant of subsequent returns. Results persist after controlling for asset growth and capital expenditure growth. Additional tests indicate that the sustainable growth effect is attributable to risk and not to mispricing.