Abstract
We examine the relationship between stock return sensitivities to interest rate changes (interest rate sensitivities) and firm growth. A discounted cash flow method implies a negative association between interest rate sensitivities and growth expectations because, all else equal, the present value of distant cash flows declines more sharply than that of near-term cash flows when interest rates rise. However, changes in interest rates may also influence expected cash flows and the risk premium, making the overall relationship between interest rate sensitivities and firm growth an empirical question. Our findings indicate that while stock return sensitivity to nominal interest rates weakly predicts growth, the expected inflation component is a strong negative predictor.