Abstract

http://ssrn.com/abstract=2519
 
 

Citations



 


 



Earnings Management and the Post-Issue Underperformance of Seasoned Equity Offerings


Siew Hong Teoh


University of California - Paul Merage School of Business

Ivo Welch


University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

T.J. Wong


The Chinese University of Hong Kong (CUHK) - School of Accountancy



Abstract:     
Loughran and Ritter (1995) document that firms issuing seasoned equity offerings (SEOs) severely underperform the stock market for three to five years after the offering. Our paper examines the hypothesis that SEO investors are too optimistic because they naively extrapolate earnings trends without fully adjusting for observable discretionary managerial reporting choices. We find that aggressive firms, which report high pre-SEO earnings at the expense of post-SEO earnings by taking high discretionary pre-issue accruals, subsequently performed worse (abnormal stock returns and industry-adjusted net income). Aggressive quartile firms earned a highly significant-48% four-year cumulative abnormal return; conservative quartile firms earned an insignificant-7% four-year cumulative abnormal return. In contrast with discretionary accruals, pre-issue non-discretionary accruals did not predict post SEO returns. This paper is also available at the following web address: ftp://next.agsm.ucla.edu/academic.finance/mngseo.ps ftp://next.agsm.ucla.edu/academic.finance/mngseo.hp If you have any questions concerning downloading, please contact Professor Teoh.

JEL Classification: G14, M41

working papers series


Not Available For Download

Date posted: August 22, 1998  

Suggested Citation

Teoh, Siew Hong and Welch, Ivo and Wong, T.J., Earnings Management and the Post-Issue Underperformance of Seasoned Equity Offerings. Available at SSRN: http://ssrn.com/abstract=2519

Contact Information

Siew Hong Teoh (Contact Author)
University of California - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
Ivo Welch
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tak Jun Wong
The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )
Shatin, N.T.
Hong Kong
852.2609.7750 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 3,445

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.359 seconds