A Longitudinal and Cross-Sectional Study of the Relationship betweenAsset Growth and Stock Returns in Tehran Stock Exchange

Nowadays, achieving the economic goals of a country is impossible without the participation of its people. One of the ways of increasing participation in economic development is investment in capital market and stock exchange, for these markets channel small, dispersed investments toward productive activities and grease the wheels of economy. The purpose of the present research is to examine the relationship between stock returns and asset growth in Tehran Stock Exchange (TSE) during the period 2004-2010. The research is descriptive and the data is collected from TSE and the firms' financial statements. Multivariate regression analysis, panel data, and Student's t-test are used to find whether there is a significant relationship between stock returns and asset growth. The results suggest a significant positive relationship between stock returns and asset growth. The findings of the present research can be helpful to financial policy-makers, capital market decision-makers, TSE-listed firms, and institutional and individual investors. Extensive research has been carried out on stock market behavior and the results of these studies are models and evaluation variables that have been subject to various criticisms and supports. In the most recent studies conducted by Cooper, Gulen, and Schill (2008) and Gray and Johnson (2011), a strong significant associationwas observed between stock returns and asset growth. The present research also studies the relationship between these two variables in the firms listed in Tehran Stock Exchange (TSE). Review of the Literature: Gray and Johnson (2011)examined the association between stock characteristics and the cross-section of stock returnsin the Australian equity market. Studying the period 1983-2007, they found that asset growth is one of the most important predictors of stock returns and that there is a significant relationship between these two variables after controlling for such factors as size, market-to-book ratio, price-earnings ratio, and asset returns. Cooper et al. (2008) studies the relationship between asset growth and the cross-section of stock returns. They found that assetgrowth rates are strong predictors of future abnormal returns. Comparing asset growthrates with the previously documented determinants of the cross-section of returns (i.e.,book-to-market ratios, firm capitalization, lagged returns, accruals, and other growthmeasures), they found that a firm's annual asset growth rate is an economicallyand statistically significant predictor of the cross-section of stock returns. The period of this research was between 1963 and 2003. Barbee, Jeong, and Mukherji (2008) studied the association between portfolio returns and market multiples and came to the conclusion that price-to-earnings ratio (P/E), price-to-sales ratio (P/S), price-to-book ratio (P/B), and price-to-cash flow ratio (P/CF) are significantly associated with returns. They also found that the P/S component has the most consistently significant relation and the highest explanatory power. Michailidis, Tsopoglou, and Papanastasiou (2007) studied the cross-section of expected stock returns for the Athens Stock Exchange. They examined the effect of earnings-price ratio, book-to-market equity, size, and market on stock returns. Their results showed no significant relationship between market and average returns. Moreover, this study found no significant relationship between other studied ratios and stock returns. The period of the research was 1997-2003. Lakonishok, Shleifer, and Vishny (1994) concluded that stocks with high cash flow-to-price ratio had higher returns than those with high book-to-market ratio and earnings-to-price ratio. Moreover, in this study the relationship between market variables and future returns has been examined in several international markets. O'Brien,Brailsford, andGaunt, (2010) studied the effect of size, book-to-market ratio, and momentum on returns. The results showed that these factors have a role in explaining returns, but further analysis showed that there is interaction between size and momentum, as well as between size and book-to-market. They also found that the size premium is the strongest, particularly in the loser portfolios, while the book-to-market value