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Are Financial Markets Overly Optimistic about the Prospects of Firms That Issue Equity? Evidence from Voluntary versus Involuntary Equity Issuances by Banks

  • Marcia Millon Cornett

    (College of Business and Administration, Southern Illinois University,)

  • Hamid Mehran

    (Kellogg Graduate School of Management, Northwestern University,)

  • Hassan Tehranian

    (Wallace E. Carroll School of Management, Boston College)

This paper examines firm performance around announcements of common stock issues. We study the banking industry in which some stock issues are made voluntarily by managers, and other issues are involuntary. We find that banks that voluntarily issue common stock experience a significant drop in the matched adjusted operating performance following the issue, a significant drop in benchmark firms' adjusted stock prices following the issue, and systematically negative market reactions to post-issue quarterly earnings announcements. Banks that issue common stock involuntarily experience values for these measures that are not significantly different from those of the benchmark firm(s). Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 6 (December)
Pages: 2139-2159

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Handle: RePEc:bla:jfinan:v:53:y:1998:i:6:p:2139-2159
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