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Seasoned Equity Offerings: The Case Of All‐Equity Firms

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  • Rajiv Sant
  • Stephen P. Ferris

Abstract

Three theories have been widely proposed to explain the significant negative market response to the announcement of a new equity issue. By observing a similar negative effect in a sample of zero and near zero long‐term debt firms, we are able to conclude that the capital structure hypothesis is not the sole explanation. Regressions of announcement period abnormal returns against subsequent cashflow change while controlling for price pressure effects provide evidence in support of the information hypothesis. Decomposition of the sample by issue purpose reveals a differential impact at the time of announcement consistent with an information‐based explanation.

Suggested Citation

  • Rajiv Sant & Stephen P. Ferris, 1994. "Seasoned Equity Offerings: The Case Of All‐Equity Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(3), pages 429-444, April.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:3:p:429-444
    DOI: 10.1111/j.1468-5957.1994.tb00328.x
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