Self-Selection and Stock Returns Around Corporate Security Offering Announcements
University of Manchester - Manchester Business School
Laurie Simon Hodrick
Columbia Business School - Finance and Economics
January 25, 2012
Columbia Business School Research Paper No. 12-11
Stock returns around security offering announcements are conditional on firms’ self-selection into a particular security type. We use a switching regression methodology on a data set of U.S. straight debt, convertible debt, and seasoned equity offerings to estimate counterfactual announcement returns that would be obtained had the same firms instead opted for alternative financing. Our evidence is consistent with firms choosing the financing type with the least negative expected announcement effect. Our results justify some observed pecking order behavior patterns better than do actual announcement effects, yet also suggest that for some firms equity-like financing may be preferred to debt-like financing.
Number of Pages in PDF File: 53
Keywords: Corporate Security Offering Announcement Effects, Pecking Order, Security Choice, Self-Selection
JEL Classification: G14, G32working papers series
Date posted: February 20, 2011 ; Last revised: January 26, 2012
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