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Long-Run Performance following Private Placements of Equity

Author

Listed:
  • Michael Hertzel

    (Arizona State University,)

  • Michael Lemmon

    (University of Utah,)

  • James S. Linck

    (University of Georgia,)

  • Lynn Rees

    (Texas A&M University)

Abstract

Public firms that place equity privately experience positive announcements effects, with negative post-announcement stock-price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long-term averages. Copyright The American Finance Association 2002.

Suggested Citation

  • Michael Hertzel & Michael Lemmon & James S. Linck & Lynn Rees, 2002. "Long-Run Performance following Private Placements of Equity," Journal of Finance, American Finance Association, vol. 57(6), pages 2595-2617, December.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2595-2617
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