ASSET GROWTH AND STOCK PERFORMANCE: AN ASIAN REIT PERSPECTIVE

Abstract

This paper examines the relationship between asset growth rates and future stock performance for Real Estate Investment Trusts (REITs). Specifically, this study tests whether Asian REITs that grow their assets rapidly experience abnormally low returns in the following years. Sorting REITs into portfolios based on asset growth and tracking their returns going forward, the results show no significant relationship between asset growth and stock returns. This result, which is confirmed by Fama-MacBeth (1973) regressions, suggests that asset growth rate is not a good predictor of future stock performance of REITs. Analysing the subcomponents of asset growth, the negative effect of asset growth on stock returns only exist when REITs fund their growth through debt financing. Hence, it is essential for REIT managers to exercise financial discipline and adopt prudent growth strategies to maximise value for unitholders.