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Investment-Based Underperformance Following Seasoned Equity Offerings

  • Evgeny Lyandres
  • Le Sun
  • Lu Zhang
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Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11459.

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Date of creation: Jul 2005
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Handle: RePEc:nbr:nberwo:11459
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