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Seasoned Equity Offerings and Stock Price Crash Risk

Author

Listed:
  • Rodney D. Boehme

    (W. Frank Barton School of Business, Wichita State University, Wichita, United States)

  • Veljko Fotak

    (School of Management, State University of New York at Buffalo, Buffalo, United States)

  • Anthony D. May

    (W. Frank Barton School of Business, Wichita State University, Wichita, United States)

Abstract

Using a large sample of U.S. firms during 1987–2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity.

Suggested Citation

  • Rodney D. Boehme & Veljko Fotak & Anthony D. May, 2020. "Seasoned Equity Offerings and Stock Price Crash Risk," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(4), pages 131-146, October.
    • Handle: RePEc:rbs:ijfbss:v:9:y:2020:i:4:p:131-146
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    References listed on IDEAS

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    Cited by:

    1. Loureiro, Gilberto & Silva, Sónia, 2022. "Earnings management and stock price crashes post U.S. cross-delistings," International Review of Financial Analysis, Elsevier, vol. 82(C).

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