We thank Dave Diltz, Peggy Swanson, Bill Crowder, Po-Hsuan Hsu, participants in the 2008 FMA meetings in Dallas, Texas, participants in the doctoral seminar series held at the University of Texas at Arlington, and especially the referee, Huseyin Gulen, for helpful comments. An earlier draft of this paper appeared in Wikrom Prombutr's doctoral dissertation.
SUSTAINABLE GROWTH AND STOCK RETURNS
Article first published online: 29 DEC 2010
© 2010 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 33, Issue 4, pages 519–538, Winter 2010
How to Cite
Lockwood, L. and Prombutr, W. (2010), SUSTAINABLE GROWTH AND STOCK RETURNS. Journal of Financial Research, 33: 519–538. doi: 10.1111/j.1475-6803.2010.01281.x
- Issue published online: 29 DEC 2010
- Article first published online: 29 DEC 2010
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.