Can the Stock Market Anticipate Future Operating Performance? Evidence from Equity Rights Issues
University of Twente - Department of Business Administration
Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)
November 2002, 11
ERIM Report Series Reference No. ERS-2002-102-F&A
This paper examines whether the stock market valuation impact is consistent with subsequent operating performance of firms. We use data for equity rights offerings - the widely adopted flotation method in the Netherlands. We first examine the stock market announcement effect of rights issues and observe that a statistically significant stock price decline takes place when companies announce rights issues. Further stock price decline is also observed during the subscription period. We then analyze post-rights issue operating performance of firms and find that, consistent with the announcement period decline in stock price, rights issuing firms subsequently exhibit a statistically significant decline in their operating performance. Additional investigation of both stock and operating performance decline provides full support for the information asymmetry hypothesis, partial support for the free cash flow hypothesis but no support for the window of opportunity hypothesis.
Number of Pages in PDF File: 47
Keywords: equity offerings, rights issues, valuation effect, firm performance
JEL Classification: M, M41, G3, G32, G14working papers series
Date posted: January 18, 2003
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.891 seconds