Advanced Search
MyIDEAS: Login

Evidence on the Trade-Off between Risk and Return for IPO and SEO Firms

Contents:

Author Info

  • Alon Brav
  • Roni Michaely
  • Michael Roberts
  • Rebecca Zarutskie

Abstract

"Do the low long-run average returns of equity issuers reflect underperformance due to mispricing or the risk characteristics of the issuing firms? We shed new light on this question by examining how institutional lenders price loans of equity issuing firms. Accounting for standard risk factors, we find that equity issuing firms' expected debt return is equivalent to the expected debt return of nonissuing firms, implying that institutional lenders perceive equity issuers to be as risky as similar nonissuing firms. In general, institutional lenders perceive small and high book-to-market borrowers as systematically riskier than larger borrowers with low book-to-market ratios, consistent with the asset pricing approach in Fama and French (1993). Finally, we find that firms' expected debt returns decline after equity offerings, consistent with recent theoretical arguments suggesting that firm risk should decline following an equity offering. Overall, our analysis provides novel evidence consistent with risk-based explanations for the observed equity returns following IPOs and SEOs." Copyright (c) 2009 Financial Management Association International.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1755-053X.2009.01034.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 38 (2009)
Issue (Month): 2 (06)
Pages: 221-252

as in new window
Handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:221-252

Contact details of provider:
Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331, Tampa, FL 33620
Phone: 813-974-3318
Fax: 813-974-2084
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0046-3892
More information through EDIRC

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0046-3892

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Saumitra, Bhaduri, 2012. "Why do firms issue equity? Some evidence from an emerging economy, India," MPRA Paper 38043, University Library of Munich, Germany.
  2. Zhi Da & Ravi Jagannathan & Jianfeng Shen, 2012. "Building Castles in the Air: Evidence from Industry IPO Waves," NBER Working Papers 18555, National Bureau of Economic Research, Inc.
  3. Chen, Long & Zhao, Xinlei, 2006. "On the relation between the market-to-book ratio, growth opportunity, and leverage ratio," Finance Research Letters, Elsevier, vol. 3(4), pages 253-266, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:221-252. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.