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Security Issuances in Hot and Cold Markets

Author

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  • Min Maung

    (Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan, Saskatoon, S7N 5A7, Canada)

Abstract

Overwhelming evidence indicates that firms time market conditions to issue equity. I investigate the motivations for security issuances in hot and cold markets. While it is commonly believed that firms tend to exploit overvaluations to issue equity and overinvest in so-called 'hot' markets, which often results in lower future returns, I show that security issuances in certain periods with lower adverse selection costs are motivated by fundamentals such as capital expenditures and financial constraints, and that these issuances can create shareholder wealth. In contrast, firms that issue equity during periods of high sentiment experience a decline in future returns.

Suggested Citation

  • Min Maung, 2014. "Security Issuances in Hot and Cold Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-45.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:03:n:s0219091514500209
    DOI: 10.1142/S0219091514500209
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    Citations

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    Cited by:

    1. Andrew Vivian & Bin Xu, 2018. "Time-varying managerial overconfidence and pecking order preference," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 799-835, April.
    2. Troy Pollard, 2016. "Sneaking in the back door? An evaluation of reverse mergers and IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 305-341, August.

    More about this item

    Keywords

    Security issuances; adverse selection; market timing; hot market; cold market; sentiments; JEL Classifications: G14; JEL Classifications: G31; JEL Classifications: G32;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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