Announcement Effects of New Equity Issues and the use of Intraday Price Data
This paper examines the within day pattern of common stock returns surrounding announcements of new issues of equity and debt by industrial firms. During the first fifteen minutes following new equity issue announcements, there is an abnormally large number of transactions, high volume, and a -1.3% average return. There is also a small, but statistically significant negative average return one hour preceding the announcement. The size of the offering, the stated purpose of the issue and the estimated profitability of new investments do not have a significant impact on stock returns. New debt issue announcements also do not have a significant impact on stock returns. After the issuance of new shares, there is a significant price recovery of 1.5%. This evidence is not consistent with many theoretical rationales for the negative market reaction to new equity issue announcements.
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