Market Expectations and the Valuation Effects of Equity Issuance

Abstract:     
We examine how the wealth effects of equity offers are influenced by investors' expectations of the equity type (public or private) to be issued. Firms deviating to the public market may be issuing when information asymmetry or agency costs are high, and their wealth effects are more negative than for firms that are anticipated to issue equity publicly. Firms deviating to the private market, however, may signal firm undervaluation or monitoring benefits and experience more positive wealth effects than firms that are expected to issue equity privately. For the private issues, public market accessibility appears to influence the wealth effects.

Keywords: Equity issuance, capital structure

JEL Classification: G12, G32

Accepted Paper Series