How Political Connections and Financial Constraints Affect Total Asset Growth Anomaly Before and During the Covid-19 Pandemic?

Abstract

Our research addresses the gap in investigating how political connections and financial constraints affect asset growth anomalies before and during the Covid-19 pandemic. Our sample includes listed non-financial firms in the Vietnam stock market from 2008 to December 2020. We employ Fama and MacBeth regressions and portfolio sorting methodology to analyze a sample with 34,441 monthly observations, including 478 firms. Our findings indicate a negative relationship between asset growth and subsequent stock returns in all periods. While the asset growth anomaly existed in the Vietnam stock market before the pandemic, it disappeared during the pandemic. The average raw return difference between stocks in the highest and lowest asset growth terciles was −0.26% per month before the pandemic. Our robustness tests show that asset growth anomaly exists in firms with political connections during the pandemic. In addition, the asset growth anomaly only persists in larger firms before the pandemic. Our findings support agency and pecking order theory, behavior, and rational explanations. Finally, this study contributes practical implications for managers and individual investors to prevent adverse impacts of asset growth anomalies.