Abstract

http://ssrn.com/abstract=251502
 
 

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Seasoned Public Offerings: Resolution of the 'New Issues Puzzle'


B. Espen Eckbo


Dartmouth College - Tuck School of Business; European Corporate Governance Institute (ECGI)

Ronald W. Masulis


University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

Oyvind Norli


BI Norwegian Business School - Department of Financial Economics

2000

Journal of Financial Economics, Vol. 56, 251-291, 2000
Tuck School of Business Working Paper

Abstract:     
The 'new issues puzzle' is that stocks of common stock issuers subsequently underperform nonissuers matched on size and book-to-market ratio. With 7000 seasoned equity and debt issues, we document that issuer underperformance reflects lower systematic risk exposure for issuing firms relative to the matches. A consistent explanation is that, as equity issuers lower leverage, their exposures to unexpected inflation and default risks decrease, thus decreasing their stocks' expected returns relative to matched firms. Equity issues also significantly increase stock liquidity (turnover), again lowering expected returns relative to nonissuers. We conclude that the 'new issue puzzle' is explained by a failure of the matched-firm technique to provide a proper control for risk. This conclusion is robust to issue characteristics and the choice of factor model framework.

Number of Pages in PDF File: 38

Keywords: New issues puzzle, long-run performance, factor risk, seasoned public offerings, equity issuer

JEL Classification: G12, G14, G32

Accepted Paper Series


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Date posted: February 21, 2001 ; Last revised: May 4, 2009

Suggested Citation

Eckbo, B. Espen and Masulis, Ronald W. and Norli, Oyvind, Seasoned Public Offerings: Resolution of the 'New Issues Puzzle' (2000). Journal of Financial Economics, Vol. 56, 251-291, 2000; Tuck School of Business Working Paper. Available at SSRN: http://ssrn.com/abstract=251502

Contact Information

B. Espen Eckbo (Contact Author)
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)
HOME PAGE: http://www.tuck.dartmouth.edu/eckbo
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Ronald W. Masulis
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Oyvind Norli
BI Norwegian Business School - Department of Financial Economics ( email )
Nydalsveien 37
Oslo, N-0442
Norway
+4746410514 (Phone)
HOME PAGE: http://www.bi.edu/research/employees/?ansattid=a0510249
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References:  30
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