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Investment Opportunities, Managerial Decisions, and the Security Issue Decision

  • Kooyul Jung
  • Yong-Cheol Kim
  • Rene M. Stulz

With agency costs of managerial discretion, equity financing is advantageous for the shareholders of firms with valuable investment opportunities but not for the shareholders of other firms. Accordingly, we find that firms with good investment opportunities are more likely to issue equity than debt, have a smaller abnormal return in absolute value when the issue is announced, and experience substantial asset growth following the issue. Firms that issue equity even though they do not have good investment opportunities experience a larger abnormal return in absolute value when the issue is announced and invest more after the issue than comparable firms that issue debt.

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File URL: http://www.nber.org/papers/w4907.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4907.

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Date of creation: Oct 1994
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Publication status: published as Jung, Kooyul, Yong-Cheol Kim and Rene M. Stulz. "Timing, Investment Opportunities, Managerial Discretion, And The Security Issue Decision," Journal of Financial Economics, 1996, v42(2,Oct), 159-185.
Handle: RePEc:nbr:nberwo:4907
Note: CF
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