The q-theory explanation for the external financing effect: New evidence

Yuan Huang, F. Y.Eric C. Lam, Kuo-chiang Wei

Research output: Journal article publicationJournal articleAcademic researchpeer-review

6 Citations (Scopus)


Several studies document a robust negative association between net external financing and average stock returns, which is referred to as the external financing effect. Using total asset growth as a comprehensive measure of overall corporate investment and total profitability gross of R&D expenditures as a measure of true economic profitability, we provide new evidence in support of the q-theory explanation for the external financing effect. We also test the market timing explanation for the external financing effect but fail to document supportive evidence.
Original languageEnglish
Pages (from-to)69-81
Number of pages13
JournalJournal of Banking and Finance
Publication statusPublished - Oct 2014


  • Cross-section of stock returns
  • External financing
  • Q-Theory of investment
  • R&D
  • Total asset growth
  • Total profitability

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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