Advanced Search
MyIDEAS: Login

Intended use of proceeds and the long-run performance of seasoned equity issuers

Contents:

Author Info

  • Autore, Don M.
  • Bray, David E.
  • Peterson, David R.
Registered author(s):

    Abstract

    We investigate the relation between seasoned equity issuers' stated intended use of proceeds and their subsequent long-run stock and operating performance. Stated intended uses of proceeds are: investment, recapitalization, and general corporate purposes. We find that issuers stating recapitalization or general corporate purposes experience abnormally poor performance in the subsequent three years, but issuers stating investment display little or no subsequent underperformance. These results suggest that issuers with specific plans to use the proceeds for investment purposes are credibly signaling profitable investment opportunities, whereas issuers without specific investment plans are more likely to be opportunistic market timers. Consistent with a timing motive, the secondary component of the offering is significantly larger when the issuer is not specific about investment plans.

    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.sciencedirect.com/science/article/B6VFK-4VC0YDG-2/2/5cad306fb453f089615171c601f8cd42
    Download Restriction: Full text for ScienceDirect subscribers only

    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 Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 15 (2009)
    Issue (Month): 3 (June)
    Pages: 358-367

    as in new window
    Handle: RePEc:eee:corfin:v:15:y:2009:i:3:p:358-367

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Seasoned equity offer Use of proceeds Long-run performance Investment financing Market timing;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Eugene F. Fama, . "Market Efficiency, Long-term Returns, and Behavioral Finance," CRSP working papers 340, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. William J. Wilhelm & Alexander Ljungqvist, 2002. "IPO Pricing in the Dot-com Bubble," OFRC Working Papers Series 2002fe07, Oxford Financial Research Centre.
    3. Tyler Shumway & Vincent A. Warther, 1999. "The Delisting Bias in CRSP's Nasdaq Data and Its Implications for the Size Effect," Journal of Finance, American Finance Association, vol. 54(6), pages 2361-2379, December.
    4. Alon Brav & Christopher Geczy & Paul A. Gompers, . "Is the Abnormal Return Following Equity Issuances Anomalous?," Rodney L. White Center for Financial Research Working Papers 02-99, Wharton School Rodney L. White Center for Financial Research.
    5. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    6. Shumway, Tyler, 1997. " The Delisting Bias in CRSP Data," Journal of Finance, American Finance Association, vol. 52(1), pages 327-40, March.
    7. Mark L. Mitchell & Erik Stafford, 1997. "Managerial Decisions and Long-Term Stock Price Performance," CRSP working papers 453, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    8. Randall A. Heron & Erik Lie, 2004. "A Comparison of the Motivations for and the Information Content of Different Types of Equity Offerings," The Journal of Business, University of Chicago Press, vol. 77(3), pages 605-632, July.
    9. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    10. Gibson, Scott & Safieddine, Assem & Sonti, Ramana, 2004. "Smart investments by smart money: Evidence from seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 72(3), pages 581-604, June.
    11. Kahle, Kathleen M., 2000. "Insider trading and the long-run performance of new security issues," Journal of Corporate Finance, Elsevier, vol. 6(1), pages 25-53, March.
    12. Walker, Mark D. & Yost, Keven, 2008. "Seasoned equity offerings: What firms say, do, and how the market reacts," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 376-386, September.
    13. Pierre Jeanneret, 2005. "Use of the Proceeds and Long-term Performance of French SEO Firms," European Financial Management, European Financial Management Association, vol. 11(1), pages 99-122.
    14. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    15. Robyn McLaughlin & Assem Safieddine & Gopala K. Vasudevan, 1996. "The Operating Performance of Seasoned Equity Issuers: Free Cash Flow and Post-Issue Performance," Financial Management, Financial Management Association, vol. 25(4), Winter.
    16. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    17. Marcia Millon Cornett & Hamid Mehran & Hassan Tehranian, 1998. "Are Financial Markets Overly Optimistic about the Prospects of Firms That Issue Equity? Evidence from Voluntary versus Involuntary Equity Issuances by Banks," Journal of Finance, American Finance Association, vol. 53(6), pages 2139-2159, December.
    18. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-50, December.
    19. Kim, Woojin & Weisbach, Michael S., 2008. "Motivations for public equity offers: An international perspective," Journal of Financial Economics, Elsevier, vol. 87(2), pages 281-307, February.
    20. Loughran, Tim & Ritter, Jay R., 2000. "Uniformly least powerful tests of market efficiency," Journal of Financial Economics, Elsevier, vol. 55(3), pages 361-389, March.
    21. Andrew J. Leone & Steve Rock & Michael Willenborg, 2007. "Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings," Journal of Accounting Research, Wiley Blackwell, vol. 45(1), pages 111-153, 03.
    22. Hansen, Robert S & Crutchley, Claire, 1990. "Corporate Earnings and Financings: An Empirical Analysis," The Journal of Business, University of Chicago Press, vol. 63(3), pages 347-71, July.
    23. Murray Carlson & Adlai Fisher & Ron Giammarino, 2006. "Corporate Investment and Asset Price Dynamics: Implications for SEO Event Studies and Long-Run Performance," Journal of Finance, American Finance Association, vol. 61(3), pages 1009-1034, 06.
    24. Evgeny Lyandres & Le Sun & Lu Zhang, 2008. "The New Issues Puzzle: Testing the Investment-Based Explanation," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2825-2855, November.
    25. Timothy R. Burch & William G. Christie & Vikram Nanda, 2004. "Do Firms Time Equity Offerings? Evidence from the 1930s and 1940s," Financial Management, Financial Management Association, vol. 33(1), Spring.
    26. Jonathan Clarke & Craig Dunbar & Kathleen Kahle, 2004. "The Long-Run Performance of Secondary Equity Issues: A Test of the Windows of Opportunity Hypothesis," The Journal of Business, University of Chicago Press, vol. 77(3), pages 575-604, July.
    27. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    28. Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 38(3), pages 243-267, July.
    29. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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

    Cited by:
    1. Ming Dong & David Hirshleifer & Siew Hong Teoh, 2012. "Overvalued Equity and Financing Decisions," Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3645-3683.
    2. Yusnidah Ibrahim & Md Mohan Uddin & Kamarun Nisham Taufil Mohd & Mohd Sobri Minai, 2013. "Agency Costs and the Long-Run Performance of Debt Issuers," Asian Academy of Management Journal of Accounting and Finance, Penerbit Universiti Sains Malaysia, vol. 9(1), pages 67-87.
    3. Hatem Mansali, 2009. "La gestion des résultats et les performances comptables à long terme des entreprises françaises émettrices d’actions," Revue Finance Contrôle Stratégie, revues.org, vol. 12(4), pages 39-83, December.
    4. De Ridder, Adri & Burnie, David A. & Råsbrant, Jonas, 2012. "Institutional investors' holdings surrounding equity rights offerings," Global Finance Journal, Elsevier, vol. 23(2), pages 125-140.

    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:eee:corfin:v:15:y:2009:i:3:p:358-367. 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: (Zhang, Lei).

    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.