The Impact of Firm Growth on Returns of Nonfinancial Firms Listed on Egyptian

Ghada Saeed, Suez Canal University, Egypt Saad Metawa, Mansoura University, Egypt Tarek Eldomiaty, Misr International University, Egypt

Abstract

The main purpose of the research is to investigate whether there is an effect of firm growth on stock returns in Egyptian Stock Exchange. Sample size of the study is 77 firms of nonfinancial firms listed on Egyptian Stock Exchange. The required data were collected from firms’ financial statements from 2010-2014. Firm growth is calculated by four measures which are: Total asset growth, fixed asset growth, Sales revenue growth, and sales weighted fixed asset growth. Stock return is calculated using the appreciation in stock price divided by the original price for each period. Panel model estimation was used in the analysis. Results of the analysis revealed that there is no association between total asset growth and stock returns, there is a negative association between fixed asset growth and stock returns, there is positive association between sales revenue growth and stock returns, and sales weighted fixed asset growth and stock returns.

Keywords: Firm growth, Total Asset growth, Sales Revenue growth, Fixed asset growth, Sales-weighted fixed asset growth, stock return, Egyptian Stock Exchange.

Introduction

Firm growth and decline is the core of and economic dynamics. Individual businesses are interested in determining the firm growth because it measures the firm ability to increase sales and expand its operations. Firm growth study is heterogeneous in nature, and the differences are growth indicator, firm growth measures, and differences in processes by which firm growth occurs. is an important way for firms to raise their fund. It allows firms to be publicly traded and raise fund to expand and spend for their activities. So, the fund firm gets through issuing can be used in growing the firm. But in return deserve return. This research examines whether growing the firm affects stock return or not and if found, what is the nature of the relation. Firm growth is very important to be studied; because it affects many items inside and outside the firm. In addition to helping the firm to survive, it affects employment rate because firm growth means more jobs. Growth of the firm can be found in any sector. It means needing innovation especially in electronics sector. It means need more material and parts from other sectors, so it leads to using economies of scale and decreasing average cost of production. It affects market share and increases its market competitiveness. There are many indicators of growth, such as total asset growth, fixed assets growth, sales and revenue, cost, number of employees, stock market value….etc. There is no single way to measure growth, but choosing the appropriate way to measure growth depends on the industry

1 and research questions. Some of these indicators are used as measures of firm growth in the research. This research examines the relation between firm growth and cross section of stock returns. Research population is composed of all nonfinancial firms listed on Egyptian Stock Exchange. Secondary data are extracted from the financial statements of the firms over the period of 2010-2014. Firm growth is measured by four measures: total asset growth rate, fixed assets growth rate, sales revenue growth rate, and sales weighted fixed assets growth rate. Stock return is measured by the appreciation in stock price divided by the price at the beginning of the period. Therefore, this research is going to shed the light on firm growth, its measures, their impact on stock return, and it aims to achieve the following objectives: First: To examine the impact of firm growth rates on stock returns. Second: To measure firm growth rate through calculating total assets growth rate, fixed assets growth rate, sales revenue growth rate and sales-weighted fixed assets growth rate. Third: To measure stock return using appreciation in stock price divided by the original price for each period. Forth: To enrich the literature by a framework of some factors that affect stock returns and this will try to fill the gap of the lack of studies tackling firm growth as an independent variable.

Literature Review:

1. Firm growth Firm growth shows how firms behave once they enter the market, their market opportunities and level of efficiency (Carrizosa, 2007). Firm growth has many definitions. It can be defined “in terms of revenue generation, value addition, and expansion in terms of volume of the business”, (Regasa, 2015). According to (Kruger, 2004), firm Growth can be measured in terms of profit, total assets, turnover, net assets, net worth, and increase in number of employees. Firm growth is very important for flourishing the firm. Using financial resources, human resources, and other resources in the firm effectively affect the firm growth rather than other firms.

Gupta et al., (2013) explained that Growth-oriented firms are contributors in nation’s economic gain. Firm growth can be defined in terms of resource-based perspective which focuses on firm resources such as business activities expansion, educated staff, financial resources…. Etc.

Nelson and winter (1982) define growth as “an organizational outcome resulting from the combination of firm specific resources, capabilities, and routines.”

Gupta (1968) defines growth as “the annual percentage change in total assets, sales, and operating profit.” He explains that the financial manager believes that the firm growth is raising firm size and activities in the run, but on the contrary growth implies expansion of firm sales, profits, and assets because it is important for firm survival, and increasing stockholders . Bei and Wijewardana (2012), and Tahir et al., (2013) calculate the growth index of the total assets, profit and sales using the following:

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Measures of firm growth There are many measurements for firm growth, but this research uses only four which are:-

1. Total asset growth rate Total assets growth rate can be used as a firm growth measure because it captures the aggregate growth of the firm. And any change in subcomponent of assets- investment or disinvestment will lead to change in total assets.

Mateev and Anastasou (2010) find that total asset as a measure of firm size affect directly on sales revenue, and amount of capital at starting time, and firm growth strategy are important in anticipating small firm growth. Chen et al., (2008) defined annual firm total asset growth rate as “year-over-year percentage change in total assets”. Cooper et al., (2008),Chen et al., (2008), Titman et al., (2010) and Wang el al., (2015) use the equation:-

This research calculates total assets growth by:-

2. Sales revenue growth rate The most valuable overall indicator of change in the firm business prospects is sales revenue growth, (Hirschey & Nofsinger) As known, revenue is income the firm receives from its normal business activities such as sale of goods and services to customers across period of time. Revenue growth is the percentage change in firm revenue between two times of period. It is used to measure how fast firm is expanding, so it can be used as a firm growth measure. In this research, it is calculated by:-

3. Fixed assets growth rate Fixed assets growth or investment combines the acquisition and capital improvement of tangible fixed assets. It is measured as capital spending. It refers to any investment within the measurement period in physical asset, such as real estate, machines,…Etc. those are held for more than one year. Fixed assets growth can be good indicator for how much investment is occurring in the firm. When firm invests in fixed assets, it indicates to the business owners’ ability to earn more in the next year; so it indicates to firm growth. It is useful to study fixed asset investment, because it is easier to measure and easier to compare across firms from different sectors (Dong et al., 2012). It is calculated by:-

The researcher will use net fixed assets which means after deducting depreciation.

4. Sales-weighted fixed assets growth

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Eldomiaty (2010) has introduced a firm growth measure relies on sales-weighted fixed assets growth which is:-

He used this measure because it takes into account sales growth and fixed assets at the same time and relates fixed assets growth to maximum sales the firm can achieve.

Measure of stock returns Stock return can be measured by formula which is an appreciation in the price plus any paid divided by the original stock price. It as measured as below:-

The relation between Total assets growth and stock returns Chen et al., (2008) provided empirical evidence on the impact of firm asset growth on stock returns using data on nine equity markets in the Pacific-Basin region (PACAP). They found that there is a significant negative relation between firms’ asset growth and stock returns subsequently. They explained the reason of low stock return sensitivity to asset growth in PACAP region comparing with US. They found that the asset growth persistence is higher in the region- specifically, in spite of the pattern of decreasing profitability and future growth for firms with high asset growth. Cooper et al., (2008) have examined the firm asset investment level effects on return by examining the relation between firm asset growth and subsequent cross-sectional stock returns. The research showed the capability of asset growth to anticipate the cross-section of returns due to its capability to capture common return effects across the firm’s total investment components or financing activities. The result of research suggests that asset growth leads to relation among firm size, returns, and finance types. They have explored that firm asset growth rate is stronger in determining future returns than other growth measures. They have documented there is a strong negative relation between firm’s asset growth and subsequent returns. They compared the firm asset growth effect with the other cross- section determinants of returns; they found that asset growth remains stronger. They examined stock return around earnings announcement. They found that earnings announcement for low growth firms are related with positive abnormal returns, and earnings announcement for high growth firms are related with negative abnormal returns. Asset growth rate has large explanatory power as determinant of cross-section stock return Cooper et al., (2009). They divided the firms according to percentage change in total assets into ten portfolios. They were holding portfolios for one year. They concluded that mean annual portfolio return of stocks with highest past assets growth is lower than mean annual portfolio returns of stocks with lowest past assets growth. They found that there is a strong and significant negative relation between subsequent returns and historical asset growth of the firm. Lipson et al., (2009) provided empirical evidence on the risk and arbitrage cost explanation for asset growth effect through series of tests emphasizing two overlapping empirical questions. First, whether the asset growth effect is limited to stocks with high arbitrage costs

4 as predicted by mispricing. Second, whether risk factor premia and time series patterns of risk factors loading are consistent with explanations based on risk. They found that the asset growth effect is related to idiosyncratic when they use multivariate regression. They also found that for stocks with low idiosyncratic risk, there is no dependable difference in returns across extreme portfolios sorted by asset growth. As idiosyncratic risk increase, the returns to high growth portfolios decline, and the returns to low growth portfolios increase. They explored that the relation between asset growth and subsequent stock returns is negative in light of two possible explanations: compensation of risk and costly arbitrage. If mispricing occurs within arbitrage bounds, it does not need violate market efficiency. Titman et al., (2010) found that there is a negative relation between asset growth and subsequent stock returns. They explained that there are differences cross-country in asset growth effect. They found that there is a strong effect of asset growth among developed countries, but they did not observe any effect among developing countries. They examined if the asset growth effect variations cross-country is related to cross-country variations in access to capital, overconfidence, and corporate governance. They found that asset effect is significantly stronger greater access to capital countries and with more overconfidence. They concluded that the variation in asset growth effect between countries may be result of cross-country differences in access to equity market and cultural environments. They also found that asset growth effect is too large and permanent in developed markets but not in developing countries. Yao et al., (2011) have explored the asset growth effect on stock returns using data on nine equity markets in Asia, which are Japan, Malaysia, China, Malaysia, Hong Kong, Korea, Taiwan, Singapore, Malaysia, and Indonesia. They focused in the study on the Asian financial markets because many Asian firms primarily depend on bank-based financial system in contrast to U.S. markets. They explained that bank-based system may impact on the firm financing and investment behavior because they can access to firm financial information and monitor the firm business performance. Banks also can effectively control the firm overinvestment. They concluded that there is a wide negative relation between asset growth and stock returns in the Asian markets during the period from 1981 to 2007. They also found that future stock return sensitivity to asset growth is significantly lower in Asia relative to U.S. and that may be a result of relying on bank financing. Gray et al., (2011) found that there is a negative relation between growth in total asset and subsequent stock return in Australian stock markets. An equally-weighted portfolio of low growth big stocks has higher stock return than high growth big stocks portfolio. Also, at individual stock level of analysis, there is a negative impact of asset growth for big stocks. They found that the asset growth impact is a result of mispricing. But according to risk-based explanation, the big spread portfolio abnormal returns are statistically insignificant. Lie et al., (2012) found that total asset growth rate has the best predictive power for stock returns using international equity markets. It is strong for most industries, regions, countries, and different sample periods, and for small and large- cap firms. They also found that the asset growth impact is significant up to the fourth year after measuring the total asset growth. They concluded that there is a negative effect of growth in asset/investment on subsequent stock returns, with two-years total asset growth rates offering the greatest predictive power by examining data sampled from the international equity markets. Wen (2013) has used the measure of firm growth in Cooper et al., (2008), which is total assets growth. By decomposing the total asset growth into major component from both the financing side and the investment side of the balance sheet, he found that asset growth is better predictor of cross-sectional returns. From investment decomposition, growth in cash

5 and other assets are significantly and negatively related with future stock market returns. From financing decomposition, growth in operating liability, equity financing, and retained earnings are stronger related with future stock market returns. He also found that high aggregate asset growth is associated with lower earnings announcement returns, and greater earnings disappointments. Watanabe et al., (2013) tested the relation between asset growth and stock returns in 53 countries in Africa, Asia, Australia, Europe, and America. They found that higher asset growth rate leads to lower stock returns in the different equity markets. They also found that there are large variations in the impact of asset growth. The negative relation is stronger in the developed markets and markets with efficient priced stocks. They also concluded that the country characteristics such as limits to arbitrage, protection, and accounting quality do not affect the relation of asset growth and stock returns. Wang et al., (2015) examined the relation between asset growth and cross-section of Chinese stock return. Data used to discuss if there is investment effect, which factors lead to it; risk factors or behavioral factors using two approaches (portfolio analysis, and cross-section analysis). They showed that investment affects significantly the Chinese stock market. They found that the firm with higher investment has lower cross-section stock returns. They found that the behavioral finance theory is better in explaining the investment effect on stock return than risk-based theory. On the behavioral basis, when the investors have restricted attention and cognitive processing power, face limited, complex information and complex environment; they cannot make a decision and show herd behavior which leads to systematic asset mispricing. Investor overreaction to positive information leads to over investment, which leads to lower return. They concluded that the relation between investment and subsequent stock returns is negative. According to risk- adjusted theory, CAPM cannot fully clarify the investment effect. The multivariate regression shows that the coefficient for , book-to-market ratio, and of CAPM are insignificant. It agrees the idea that the investment effect results from mispricing and is inconsistent with the prediction of the risk-based explanation.

The relation between sales growth and stock return Lau et al., (2002) examined the relation between stock returns and five economic variables, from them sales growth (SG). They have used data from Singapore and Malaysia. They calculated SG for each firm by taking the weighted average SG for the past 3 years. They found a negative relation between weighted average annual sales growth and stock return in Singapore and not appeared in Malaysia. Muneesh et al., (2004), using market-based and nonmarket-based measures of firm size, they determined the firm characteristics that explain variations in returns when market factors controlled. They examined if there is a real relation between size and stock returns by using market and nonmarket-based measures of company size. They also examined the strength of value effect which named as distressed firm effect. They found strong size impact and weak value impact in stock returns. They explained size effect as relation between size and common stock return. They also explained measures of firm size used in the research from them total assets (TA). TA is defined as “book value of total assets”, and it reflects the asset base needed to support operation of business. And from value or distressed measures past sales growth (PSG) which is compounded growth rate of net sales for 3 years prior to portfolio formation. They found strong size impact and weak distressed firm impact in stock returns in Indian stock market.

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Hermelo et al., (2007) explained that it is important to design highly effective and efficient firm growth improvement programs, to make sure that public and private resources are not wasted. They said that the larger the firm would become, the smaller the growth rate would be until it got to a point at which the large firm could not increase its size any more. Higher profit helps firm to invest more and expand. They used profit in terms of return on sales in the two years previous the period analyzed. They found that firms with high return have larger financial funds available from retained earnings in addition to external financing to fund new projects, enter new markets, invest in new technology, and then achieve higher growth rates. Tahir et al., (2013) explained that sales and income growth can be anticipated to affect and market value measures in both actual and simulated industries. They showed asset growth as proxy for plant expenditures, equipment expenditures, and research intensity, and said that it affects sales and income growth, so indirectly affect profitability and market value. They found that , book-to-market value, and have positive significance impact of stock return, while sales growth has insignificant positive impact. They concluded that the insignificant impact of sales growth might be due to very weakness of efficiency in Pakistan stock market. Menike et al., (2015) in a comparative analysis of Sri Lanka and United Kingdom stock markets, they explained that the movements in the stock prices are affected by changes in fundamentals of the firm and economy and the expectations about future prospects of these fundamentals. So, the country’s economy performance depends on how well the stock market performs. They studied the determinants of stock returns in Sri Lankan and United Kingdom. They tested the expected stock return as dependent variable with firm sales growth rate. They concluded that, In Sri Lanka, the past sales growth rate makes a positive significant influence on subsequent stock returns. In United Kingdom, the past sales growth rate does not significantly influence on subsequent stock returns at all.

Sales-weighted fixed assets growth According to Eldomiaty (2010), there are many factors affect firm growth that leads to appearing two theories to explain these factors which are growth-learning theory and growth- size theory. Growth-size theory focuses on the relation between firm growth and its size. Growth-learning theory focuses on the behavior of cost function as a result of firm learning. Each firm has a U shape cost function, and it is supposed that each firm produces at lower point of the curve (Viner 1932). For example, innovation helps the firm to grow which need extra cost, so the firm growth can be explained by the cost function. Eldomiaty has explained that both growth-size and growth learning theories may complete each other. For example, when the firm needs to increase its sales, it will lead to increasing cost. The approach of the research is to use sales ratios in examining growth size relation, and use cost ratios to examine growth learning relation. Then it uses both ratios together to find its relation with firm growth. It examined contribution of ratios to low and high-growth firms. He introduced a measure of firm growth relies on sales-weighted fixed assets growth. It is characterized by taking into account sales and fixed assets growth at the same time and it related fixed assets growth to firm’s maximum sales.

The relation between fixed assets growth and stock returns Berk et al., (1999) explained that firms tend to invest more when its stock prices and cash flows increase, but stock price responds to capital investment announcement. Financing

7 choices (equity issuance) that are used in the investment leads to negative stock returns. While when the firm decreases investment such as repurchases, it leads to positive returns. Increasing investment expenditures need high financing means that the is confident in the firm and its management. High investment expenditures mean that the firm has great investment opportunities. Lamont (2000) showed that the relation between investment and stock returns should be positively overtime and it happens when discount rate decreases and both firm investment and stock price increase. Also the relation between investment and future stock returns should be negatively overtime and it happens when discount rate is low, present investment is high and future expected return is low. He concluded that the negative co-variation relation between investment and stock returns may be the result of investment lags decision to invest and investment expenditures. This lag prevents the firm from adjusting investment directly when discount rate changes and also can leads to negative correlation between actual investment and current returns. He concluded that planned investment positively related with current return and negatively related with future return. With investment lags, expected future investment responds to change in investing desire. Expected aggregate investment has a negative relation with expected returns. It means that planned investment responds to discount rate changes which are the result of change in equity risk premium. He also concluded that the increase of discount rate leads to decrease in investment. Titman et al., (2004) explained that firms tend to invest more when stock prices increases, then cash flows are the best predictor of firm investment expenditures. Also, stock prices react favorably to main capital investment announcement. They showed that when the firm increases its capital investment, it achieves negative benchmark adjusted return. And this negative relation is strong in firms with greater investment discretion. Investors tend to underreact to firms with increased investment expenditures. However firms that make capital investment tend to have high past return and issue equity. Increasing in stock price makes it easy to increase investment expenditures. It has been found that the firm that increases its investment expenditures the most tends to underperform its benchmark over the following five years. It is found that the negative relation between capital investment and return is stronger for firms with higher cash flow and\or lower debt ratios, which probably tends to overinvest. According to Porter (2005), there is a relation between investment growth and equity return taking into account lag between investment decision and expenditures. He found that investment returns are highly related with the equity returns of industry portfolio. Investment planning stage leads to difference between financial investment decisions and related investment expenditures. He showed that equity return is function of both current investment decisions and related future expenditures. He also showed that expected investment return and expected equity return are equal taking into account time-to-plan. He found that lagged equity returns are related with investment growth. He showed that the firm can put resources through time through making small deviations from investment plan which leads to increase firm equity. He also explained that investment return and equity return lagged by the time-to-plan are equal and can be predicted by the same variables. He found that lagged differences in investment and equity returns can anticipate future equity and investment returns. Li et al., (2006) examined the significance of information contained in sector investment growth rates for interpreting the cross-section of equity returns. They explained that the different sectors in the economy may face different productivity shocks that will lead to different returns on capital for those sectors’ firms.

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They showed that return on capital and equity returns are directly related, determines investment, and as result, the investment growth of the sector. They focused on the correlation between investment growth rate in the economy’ broad sectors and their implications for the cross section of equity returns. They found that the asset pricing tests show that the considered investment growth rates are important in interpreting the cross-section of equity returns. Christopher et al., (2006) made an empirical investigation of recent theoretical models implication that relate expected returns to firm investment and related changes in valuation. They documented empirical relations among market values, firm level investment, and book- to-market ratios. They found that stocks classification to valuation portfolios by Fama-French methodologies depend on previous growth rates in firm specific capital expenditures. They explained that there is a relation between stock returns and firm-level investment. They formed portfolios based on investment growth rates and found that subsequent monthly returns are significantly lower for firms that accelerated investment recently. They found that firm-specific growth incorporate investment assists explaining monthly stock returns in the cross-section in a pattern similar to book-to-market. Briefly, they found an empirical relation between past firm-specific investment activity and valuation ratios. Firm- specific capital investment seems to be condition for valuation ratios and expected stock returns. Christopher et al., (2009) estimated cross-sectional regression of future monthly stock return on current investment. They found that there is a negative relation between abnormal investment and stock return on average. They found that since the abnormal investment premium is relatively high, overinvesting firms have particularly high growth in subsequent abnormal investment and low subsequent abnormal returns. They showed that if the firm’s stock is mispriced, managers can issue overvalued stock or buyback overvalued equity. If stock price is higher than fundamentals, managers of equity- dependent firm can issue equity and vice versa. Suresh et al., (2014) examined the impact of asset growth on stock returns in Pakistan Stock Market. They used group of independent variables, from them, fixed assets. They tested whether the association of asset mechanisms can be related to firm stock returns. By testing the relation between the firm’s fixed assets and stock returns, they found that there is no relation between the two variables. They concluded that there is a meaningful relation between the rate of stock return and the total asset. Menike et al., (2015), in a comparative analysis of Sri Lanka and United Kingdom stock markets. They studied the determinants of stock returns in Sri Lankan and United Kingdom. They tested the expected stock return as dependent variable with firm explanatory variable- the fixed asset growth rate. They concluded that, In Sri Lanka, There is no apparent relation between fixed asset growth and stock returns. In United Kingdom, Fixed assets growth rate has a significant negative relation with stock returns.

The Need for Further Research:

There is a lack in studies that applied on Egyptian stock exchange to prove the impact of firm growth on stock returns. Therefore, taking into account previous literatures, the goal of this research is to fill the gap in the literature by starting with the exploration of these variables and illustrate how they affect the stock returns of each firm in the research sample.

Previous literatures suggest that firm growth is an area of interest for researchers, policy makers, and practitioners. Growth affects many items inside and outside the firm, help the

9 firm to survive and affect employment rate and demand on other sectors products and innovation, so the firm needs to know if growth is necessary for it or not and if it affects its value and return. To sum up, this research is going to answer an important question which is: Does growth in firms listed on Egyptian Stock Exchange affect their Stock Returns?

Research Hypotheses:

Relevant studies in the literature help in developing the hypotheses that follow:-

H1: There is a positive impact of total assets growth on stock returns. H2: There is a positive impact of fixed assets growth on stock returns. H3: There is a positive impact of Sales revenue growth on stock returns. H4: There is a positive impact of Sales-weighted fixed assets growth on stock returns.

Research model: The variables included in the proposed model demonstrated in Figure (1) are: 1. The independent variables are: a) Total assets growth rate b) Fixed asset growth rate c) Sales revenue growth rate d) Sales-weighted fixed assets growth rate. 2. The dependent variable is stock returns.

firm growth

total assets growth fixed assets growth sales revenue sales-weighted fixed rate rate growth rate assets growth rate

stock returns

Figure (1): Research model.

Research Methodology: This research is designed to study the impact of firm growth on stock returns using existing literature review and analyzing some items in the financial statements of nonfinancial firms listed on Egyptian Stock Exchange. The standard statistical tests are utilized in order to test the hypotheses. The data frequency is annual. The type of data is cross-sectional that covers the period from 2010-2014.Secondary data are obtained from financial statements of firms listed on Egyptian stock exchange. Population is the nonfinancial firms listed on Egyptian stock exchange. The nonfinancial firms are classified into 15 sectors with 178 firms.

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Population is divided into sectors (strata) based on the nature of the business, so stratified random sampling is the most suitable approach for the study. According to Sekaran 2003, when the population is 178 firm which approximately 180, the appropriate sample size is 122 firm. The final sample is comprised of 77 nonfinancial listed firms in the Egyptian Exchange during a five year sample period (2010-2014). Firms with non-December 31 fiscal year-end are excluded to facilitate interpretation of results in the context of the economics of the period. Firms with insufficient data to calculate any of the independent variables are excluded. Finally, sample excludes firms trading in foreign currency to unify the currency. All variables were calculated, and then the following statistical techniques were used in the research: 1- First, descriptive statistics were used to describe the sample characteristics (mean and standard deviation). 2- Second: Test of stationary and cointegration of time-series of study variables (dependent and independent) have used. 3- Third, Panel estimation model was used to determine the most significant independent variable to impact on the level of stock return. 4- Finally, Pairwise Granger Causality Tests was used to determine which independent variable(s) cause stock returns. Results of Hypothesis testing: Panel estimation was used to show whether there is a significant relation between dependent and independent variables. Pairwise Granger Causality Test was used to determine which independent variable(s) cause stock returns (See table 1 and table 2 in Appendix). The following part represents the results of hypotheses.

Test the First Research Hypothesis:

H1: There is a positive impact of total asset growth on stock returns. The dependent variable is R and the independent variable is TAG. Statistical techniques: T-test is used to show whether there is a significant impact of total asset growth on stock returns This hypothesis proved that stock return of firms listed on Egyptian stock Exchange is not affected by their total asset growth. Test the second Research Hypothesis:

H2: There is a positive impact of fixed asset growth on stock returns. The dependent variable is R and the independent variable is FAG. Statistical techniques: T-test is used to show whether there is a significant impact of fixed asset growth on stock returns This hypothesis proved that stock return of firms listed on Egyptian stock Exchange is negatively affected by their fixed asset growth.

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Test the third Research Hypothesis:

H3: There is a positive impact of sales revenue growth on stock returns. The dependent variable is R and the independent variable is SRG. Statistical techniques: T-test is used to show whether there is a significant impact of sales revenue growth on stock returns This hypothesis proved that stock return of firms listed on Egyptian stock Exchange is positively affected by sales revenue growth. Test the forth Research Hypothesis:

H4: There is a positive impact of sales-weighted fixed asset growth on stock returns. The dependent variable is R and the independent variable is SWFAG. Statistical techniques: T-test is used to show whether there is a significant impact of sales- weighted fixed asset growth on stock returns This hypothesis proved that stock return of firms listed on Egyptian stock Exchange is positively affected by sales-weighted fixed asset growth. Pairwise Granger Causality Tests TAG, FAG, SRG, and SWFAG do not cause stock returns.

Empirical Research Findings:

Research aims to examine the impact of firm growth on stock returns, applied on nonfinancial firms listed on Egyptian Stock Exchange, using Four measures of firm growth ( total asset growth, fixed asset growth, sales revenue growth, and sales weighted fixed asset growth).

According to the empirical study:-

 The significant value of T-test concluded that total asset growth does not impact on stock returns. Coefficient of determination (R2) of total asset growth explains (66.94%) of variation of stock returns and the rest (33.06%) is due to either random error or other independent variables excluded from regression model. The significant value of F-test of total asset growth is less than 0.001, so the model can be accepted and results can be applied.  The significant value of T-test concluded that fixed asset growth has negative impact on stock returns. Coefficient of determination (R2) of fixed asset growth explains (67.35%) of variation of stock returns and the rest (32.65%) is due to either random error or other independent variables excluded from regression model. The significant value of F-test of fixed asset growth is less than 0.001, so the model can be accepted and results can be applied.  The significant value of T-test concluded that sales revenue growth has positive impact on stock returns. Coefficient of determination (R2) of sales revenue growth explains (67.82%) of variation of stock returns and the rest (32.18%) is due to either random error or other independent variables excluded from regression model. The significant value of F-test of sales revenue growth is less than 0.001, so the model can be accepted and results can be applied.

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 The significant value of T-test concluded that sales weighted fixed asset growth has positive impact on stock returns. Coefficient of determination (R2) of sales weighted fixed asset growth explains (67.29%) of variation of stock returns and the rest (32.71%) is due to either random error or other independent variables excluded from regression model. The significant value of F-test of sales weighted fixed asset growth is less than 0.001, so the model can be accepted and results can be applied.  Pairwise Granger Causality Test concluded that the significant levels of all hypotheses are greater than 0.05, so, we reject all null hypotheses. And, Total asset growth does not cause stock, returns, fixed asset growth does not cause stock returns, sales revenue growth does not cause stock returns, and sales- weighted fixed asset growth does not cause stock returns.

Research Implications: Results of this research provide some important implications for researchers and practitioners. Theoretical Implications From a theoretical perspective this research extended the understanding of firm growth and stock returns in terms of which can let the researchers tackle stock returns as a dependent variable. Moreover, this research discussed measures of growth in firms listed on EGX. More specifically, the research examined how firm growth measures can affect firms' stock returns listed on EGX. Results indicate that There is no impact of total asset growth on stock returns. And fixed asset growth impacts negatively on stock returns. Also, both sales revenue growth and Sales weighted fixed asset growth impacts positively on stock returns.

Practical Implications The findings of this research also have important implications for practitioners in the field of finance. The research provides firms' managers with a framework to use the proposed model for their own development strategies. Stockholders and practitioners should be aware of variables such as SRG, and SWFAG to improve stocks trend then later affect stock returns positively. The research also shed the light on the effect of TAG, and FAG on stock returns. It seems that it should be aware of their negative impact on stock returns which can lead at the end to dissatisfaction of stockholders. Each firm should use the most appropriate way to grow according to its objectives, with taking into account the level of related error of each variable.

Research limitations:

The research suffers from some limitations which are:-

First, data used is limited to the time period 2010 to 2014. Using data over a longer time period would have led to more accurate results of the study. Second, study sample excluded the firms with non-December 31 fiscal year-end, and firms trading in foreign currency. Third, the research has used only four measures of firm growth (TAG, FAG, SRG, and SWFAG); so, it is advisable for future research to use other measures of firm growth (such as book-to-market ratio and earnings-per-share …etc.), and examine their impact on stock returns.

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Fourth, Future Researches also can determine other variables that impact on the relation between the firm growth and stock returns. Fifth, According to the circumstances occurred during the selected period of the study (2010- 2014), the 25th January revolution which may impact on the result of the study, so using other time-series may lead to more accurate results.

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Appendix:

Table (1): panel estimation model to determine the most significant of independent variables.

No Independent Variables Estimated t test F test R2

coefficient value Sig. value Sig. % 1 Total asset growth -0.074046 -0.389074 0.6975 8.641833 0.000000*** 70.757 2 Fixed asset growth -1.428052 -5.106127 0.0000*** 8 3 Sales revenue growth 0.229146 3.048482 0.0025** 4 Sales weighted fixed asset 2.022691 4.990150 0.0000*** growth 5 Constant -0.067440 -8.144864 0.0000***

Akaike info criterion Schwarz criterion Hannan-quinn criterion -2.024358 -1.151564 -1.678204 ***Parameter is significant at the (0.01) level

Table (2): Pairwise Granger Causality Tests.

Null Hypothesis: Obs . F -Statistic Prob. FAG does not Granger Cause R 231 0.44462 0.6416 TAG does not Granger Cause R 231 1.38281 0.2530 SRG does not Granger Cause R 231 0.21122 0.8098 SWFAG does not Granger Cause R 231 0.69964 0.4978

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