Do Firms Time Equity Offerings? Evidence from the 1930s and 1940s

Abstract:     
We investigate whether the timing of equity sales to exploit market overvaluation may account for the reported poor post-offer stock performance of firms issuing equity. We posit that rights offers, targeted to a firm's current shareholders, are less likely to be timed to exploit overvaluation. Our study compares firm commitment and rights offerings during 1933-1949 when rights offers were common. We find that abnormal returns for firms electing the firm commitment method were significantly negative over the year following the offer, while those for firms using rights were not. This suggests that firm commitments were timed, while rights offers were not.

Keywords: rights offers, firm commitments, seasoned equity offer, managerial timing

JEL Classification: G24, G32, N22

Accepted Paper Series