Prombutr, Wikrom2008-08-082011-08-242008-08-082011-08-242008-08-08April 2008http://hdl.handle.net/10106/948This dissertation comprises two essays on growth effects and opportunities experienced by companies and their implications for asset pricing models. In the first essay, I develop and test a model to explain the empirically observed value-growth stock return effect using real options theory. I simulate results from a real options model for two firm types. One type, the "value" firm, has a single growth opportunity. The other type, the "growth" firm, has infinitely repeated growth opportunities. Growth firms: (1) invest sooner, (2) pursue less lumpy investment paths, (3) have lower book-to-market ratios, and (4) generate lower rates of return than value firms. In the second essay, I examine relationships between sustainable growth and subsequent stock returns. Findings indicate that high sustainable growth firms have low default risk, low book-to-market ratio, and low subsequent returns. Cross-sectional tests indicate that sustainable growth subsumes the book-to-market equity ratio.ENPh.D.