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Investment-Based Underperformance Following Seasoned Equity Offerings

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  • Evgeny Lyandres
  • Le Sun
  • Lu Zhang
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Abstract

Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11459.

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Date of creation: Jul 2005
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Handle: RePEc:nbr:nberwo:11459

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Cited by:
  1. Krishnan, C.N.V. & Ergungor, O. Emre & Laux, Paul A. & Singh, Ajai K. & Zebedee, Allan A., 2010. "Examining bank SEOs: Are offers made by undercapitalized banks different?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 207-234, April.
  2. Erica X. N. Li & Dmitry Livdan & Lu Zhang, 2006. "Optimal Market Timing," NBER Working Papers 12014, National Bureau of Economic Research, Inc.
  3. Bayless, M. & Jay, N., 2008. "A multiperiod evaluation of returns following seasoned equity offerings," Journal of Economics and Business, Elsevier, vol. 60(4), pages 291-311.
  4. Cécile Carpentier & Jean-François L'Her & Stephan Smith & Jean-Marc Suret, 2007. "Risk, Timing and Overoptimism in Private Placements and Public Offerings," CIRANO Working Papers 2007s-27, CIRANO.

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