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Firm Size and the Information Content of Over-the-Counter Common Stock Offerings

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  • Robert M. Hull

    (Washburn University)

  • George E. Pinches

    (University of Kansas)

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    Abstract

    We examine the announcement period of stock returns for 179 over-the-counter (OTC) firms that issue common stock to reduce nonconvertible debt. We find that small OTC firms experience returns that are significantly more negative than large OTC firms. Regression tests reveal that firm size is a significant factor in accounting for stock returns. Other tests establish as firm size a dominant effect. Our support for a firm size effect is consistent with a differential information effect given that firm size is positively related to the amount of information available about firms.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-1995-04-1-b-hull.pdf
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    Bibliographic Info

    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Small Business Finance.

    Volume (Year): 4 (1995)
    Issue (Month): 1 (Spring)
    Pages: 31-55

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    Handle: RePEc:pep:journl:v:4:y:1995:i:1:p:31-55

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    Web page: http://bschool.pepperdine.edu/jef
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    Related research

    Keywords: Firm Size ; Information; OTC; Stock Offerings; Stock;

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    1. Zeghal, Daniel, 1984. "Firm Size and the Informational Content of Financial Statements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(03), pages 299-310, September.
    2. 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.
    3. Klein, Roger W. & Bawa, Vijay S., 1977. "Abstract: The Effect of Limited Information and Estimation Risk on Optimal Portfolio Diversification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 669-669, November.
    4. Thomas E. Copeland & Won Heum Lee, 1991. "Exchange Offers and Stock Swaps - New Evidence," Financial Management, Financial Management Association, vol. 20(3), Fall.
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    6. Dierkens, Nathalie, 1991. "Information Asymmetry and Equity Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 181-199, June.
    7. Chandy, P R & Peavy, John W, III & Reichenstein, William, 1993. "A Note on the Value Line Stock Highlight Effect," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(2), pages 171-79, Summer.
    8. Robert M. Hull & Richard Moellenberndt, 1994. "Bank Debt Reduction Announcements and Negative Signaling," Financial Management, Financial Management Association, vol. 23(2), Summer.
    9. Klein, Roger W. & Bawa, Vijay S., 1977. "The effect of limited information and estimation risk on optimal portfolio diversification," Journal of Financial Economics, Elsevier, vol. 5(1), pages 89-111, August.
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    16. Robert Wilson, 1975. "Informational Economies of Scale," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 184-195, Spring.
    17. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    18. Masulis, Ronald W, 1983. " The Impact of Capital Structure Change on Firm Value: Some Estimates," Journal of Finance, American Finance Association, vol. 38(1), pages 107-26, March.
    19. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    20. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
    21. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
    22. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
    23. Millon-Cornett, Marcia H & Travlos, Nickolaos G, 1989. " Information Effects Associated with Debt-for-Equity and Equity-for-Debt Exchange Offers," Journal of Finance, American Finance Association, vol. 44(2), pages 451-68, June.
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