IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2727.html

The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence

Author

Listed:
  • Robert A. Korajczyk
  • Deborah Lucas
  • Robert McDonald

Abstract

This paper develops a formal model of the timing and pricing of new equity issues, assuming that managers are better informed than new investors about the quality of the firm. Firms will prefer to issue equity when the market is most informed about the quality of the firm. This implies that equity issues tend to follow information releases, such as earnings announcements. The model also predicts a relation between the timing and pricing of equity issues. The price drop at the time of the equity issue announcement should increase in the time since the last information release, and the price drop at issue should increase with the time since the last information release or issue announcement. We test the predictions of the theory on a sample of NYSE, AMEX and OTC firms who issued equity over the period 1978-1983. We find evidence that there is a clustering of equity issues following earnings announcements and annual reports, and also that the price drop at the time of the equity issue is increasing in the time since the announcement of the issue.

Suggested Citation

  • Robert A. Korajczyk & Deborah Lucas & Robert McDonald, 1988. "The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence," NBER Working Papers 2727, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2727
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2727.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    3. Collins, Dw & Dent, Wt, 1984. "A Comparison Of Alternative Testing Methodologies Used In Capital-Market Research," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 22(1), pages 48-84.
    4. Mikkelson, Wayne H. & Partch, M. Megan, 1988. "Withdrawn Security Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(2), pages 119-133, June.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    6. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
    7. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert A. Korajczyk & Deborah Lucas & Robert L. McDonald, 1990. "Understanding Stock Price Behavior around the Time of Equity Issues," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 257-278, National Bureau of Economic Research, Inc.
    2. Lucas, Deborah J & McDonald, Robert L, 1990. "Equity Issues and Stock Price Dynamics," Journal of Finance, American Finance Association, vol. 45(4), pages 1019-1043, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert A. Korajczyk & Deborah Lucas & Robert L. McDonald, 1990. "Understanding Stock Price Behavior around the Time of Equity Issues," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 257-278, National Bureau of Economic Research, Inc.
    2. Chauhan, Yogesh & Kumar, Surya B., 2018. "Do investors value the nonfinancial disclosure in emerging markets?," Emerging Markets Review, Elsevier, vol. 37(C), pages 32-46.
    3. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That’S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    4. Battalio, Robert & Hatch, Brian & Loughran, Tim, 2011. "Who benefited from the disclosure mandates of the 1964 Securities Acts Amendments?," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1047-1063, September.
    5. B. Charumathi & Latha Ramesh, 2020. "Impact of Voluntary Disclosure on Valuation of Firms: Evidence from Indian Companies," Vision, , vol. 24(2), pages 194-203, June.
    6. Seth Freedman & Ginger Zhe Jin, 2008. "Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from Prosper.com," Working Papers 08-43, NET Institute.
    7. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.
    8. Boerner, Lars, 2016. "Medieval market making brokerage regulations in Central Western Europe, ca. 1250-1700," LSE Research Online Documents on Economics 66834, London School of Economics and Political Science, LSE Library.
    9. Christof Beuselinck & Marc Deloof & Sophie Manigart, 2008. "Private Equity Investments and Disclosure Policy," European Accounting Review, Taylor & Francis Journals, vol. 17(4), pages 607-639.
    10. Hong, Xianpei & Zhou, Menghuan & Gong, Yeming, 2021. "Dilemma of quality information disclosure in technology licensing," European Journal of Operational Research, Elsevier, vol. 294(2), pages 543-557.
    11. Jeremy Bertomeu & Davide Cianciaruso, 2018. "Verifiable disclosure," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(4), pages 1011-1044, June.
    12. Klaus Friesenbichler & George Clarke & Michael Wong, 2014. "Price competition and market transparency: evidence from a random response technique," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(1), pages 5-21, February.
    13. Doherty, Neil A. & Kartasheva, Anastasia V. & Phillips, Richard D., 2012. "Information effect of entry into credit ratings market: The case of insurers' ratings," Journal of Financial Economics, Elsevier, vol. 106(2), pages 308-330.
    14. Creane, Anthony & Jeitschko, Thomas D. & Sim, Kyoungbo, 2019. "Welfare effects of certification under latent adverse selection," DICE Discussion Papers 312, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Ott, Christian, 2020. "The risks of mergers and acquisitions—Analyzing the incentives for risk reporting in Item 1A of 10-K filings," Journal of Business Research, Elsevier, vol. 106(C), pages 158-181.
    16. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-1546, June.
    17. Vollstaedt, Ulrike & Imcke, Patrick & Brendel, Franziska & Ehses-Friedrich, Christiane, 2020. "Increasing consumer surplus through a novel product testing mechanism," Ruhr Economic Papers 887, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    18. Jesse A. Ellis & C. Edward Fee & Shawn E. Thomas, 2012. "Proprietary Costs and the Disclosure of Information About Customers," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 50(3), pages 685-727, June.
    19. Benndorf, Volker & Kübler, Dorothea & Normann, Hans-Theo, 2015. "Privacy concerns, voluntary disclosure of information, and unraveling: An experiment," European Economic Review, Elsevier, vol. 75(C), pages 43-59.
    20. Ferreira, Eurico J. & Brooks, LeRoy D., 1999. "Evidence on equity private placements and going-out-of-business information release," Journal of Economics and Business, Elsevier, vol. 51(5), pages 377-394, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2727. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.