The Long-Run Negative Drift Of Post-Listing Stock Returns
Bala G. Dharan
Harvard Law School; Charles River Associates (CRA); Rice University
David L. Ikenberry
Leeds School of Business, University of Colorado Boulder; University of Illinois at Urbana-Champaign - Department of Finance
After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Many of these firms have been public only a short period of time. Moreover, once listed, several firms make seasoned equity offerings. However, the negative post-listing drift is not a manifestation of the new-equity issuance puzzle. Instead, the negative post-listing drift appears to be the result of managers opportunistically choosing when to apply for listing. The barriers posed by initial listing requirements appear to cause some managers to apply for listing prior to a decline in performance. These requirements are more binding in smaller, less widely held stocks, the same stocks for which the drift is most severe. For large, more widely held firms, the post-listing drift is absent. This finding of opportunistic behavior is strikingly similar to the market timing arguments that have been offered to explain the poor performance observed following equity offerings.
JEL Classification: G13working papers series
Date posted: April 11, 1995
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