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Firm characteristics, market conditions, and the pattern of performance after seasoned equity offers

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  • Mark Bayless
  • Kelly Price
  • Margaret Monroe Smoller
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    Abstract

    This paper uses a characteristics-based approach to examine the pattern of abnormal returns after seasoned equity offerings. Unlike previous studies the risk class of issuers are allowed to change in each of a series of six-month holding periods and firms are classified into categories based on performance measures, the use of proceeds and market conditions at the time of issue. This methodology reveals that negative abnormal returns persist for only about 3.5 years on average following offers and are driven by the 37% of firms that reduce capital spending. These and other results suggest that post-issue abnormal returns vary in a way that is consistent with quasi-efficient capital markets.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 15 (2005)
    Issue (Month): 9 ()
    Pages: 611-622

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    Handle: RePEc:taf:apfiec:v:15:y:2005:i:9:p:611-622

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    Web page: http://www.tandfonline.com/RAFE20

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    References

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    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.:
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    1. Deborah J. Lucas & Robert L. McDonald, 1989. "Equity Issues and Stock Price Dynamics," NBER Working Papers 3169, National Bureau of Economic Research, Inc.
    2. Kang, Jun-Koo & Kim, Yong-Cheol & Stulz, Rene M, 1999. "The Underreaction Hypothesis and the New Issue Puzzle: Evidence from Japan," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 519-34.
    3. Brav, Alon & Geczy, Christopher & Gompers, Paul A., 2000. "Is the abnormal return following equity issuances anomalous?," Journal of Financial Economics, Elsevier, Elsevier, vol. 56(2), pages 209-249, May.
    4. Loughran, Tim & Ritter, Jay R., 2000. "Uniformly least powerful tests of market efficiency," Journal of Financial Economics, Elsevier, Elsevier, vol. 55(3), pages 361-389, March.
    5. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 54(6), pages 2143-2184, December.
    6. Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, Elsevier, vol. 38(3), pages 243-267, July.
    7. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
    8. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
    9. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, American Finance Association, vol. 40(4), pages 1031-51, September.
    10. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, American Finance Association, vol. 53(6), pages 1839-1885, December.
    11. Eckbo, B. Espen & Masulis, Ronald W. & Norli, Oyvind, 2000. "Seasoned public offerings: resolution of the 'new issues puzzle'," Journal of Financial Economics, Elsevier, Elsevier, vol. 56(2), pages 251-291, May.
    12. 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.
    13. Bayless, Mark & Chaplinsky, Susan, 1996. " Is There a Window of Opportunity for Seasoned Equity Issuance?," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 253-78, March.
    14. Heinkel, Robert, 1982. " A Theory of Capital Structure Relevance under Imperfect Information," Journal of Finance, American Finance Association, American Finance Association, vol. 37(5), pages 1141-50, December.
    15. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, American Finance Association, vol. 52(5), pages 1823-50, December.
    16. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 50(1), pages 23-51, March.
    17. Lee, Inmoo, 1997. " Do Firms Knowingly Sell Overvalued Equity?," Journal of Finance, American Finance Association, American Finance Association, vol. 52(4), pages 1439-66, September.
    18. Daniel, Kent, et al, 1997. " Measuring Mutual Fund Performance with Characteristic-Based Benchmarks," Journal of Finance, American Finance Association, American Finance Association, vol. 52(3), pages 1035-58, July.
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