Earnings Management as an Explanation of the Equity Issue Puzzle in the Spanish Market

Abstract:     
The poor stock price performance of firms that raise capital through seasoned equity offerings is one of the recent puzzles in financial literature. In this study we investigate whether pre-issue earnings management can explain these results for rights issues in Spain. Consistent with this explanation, we notice that firms' issuing rights make use of discretionary accruals to report higher earnings at the time of the offering decision. Most interestingly, firms with higher level of discretionary accruals seem to experience more negative long-run abnormal returns.

Number of Pages in PDF File: 37

Keywords: Corporate Finance, Seasoned Equity Offerings, Earnings Management, Accounting Accruals

JEL Classification: G14, G32, M41, M43

working papers series