Seasoned Equity Offerings, Investment Risk and Financial Constraints

33 Pages Posted: 19 May 2008

See all articles by Cécile Carpentier

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Jean-Francois L'Her

Canada Pension Plan Investment Board; Caisse de Depot et Placement du Quebec (CDPQ)

Stephan Smith

Monash University

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Date Written: February 4, 2008

Abstract

We evidence that Canadian seasoned equity issuers post a significant pre-issue stock price run-up and a significant post-issue underperformance, even when controlling for an investment risk factor, as in Lyandres, Sun and Zhang (2008). Our results do not corroborate the investment/risk hypothesis; neither are our results in line with the timing hypothesis: Canadian issuers exhibit poor operating performance, are generally financially constrained or distressed, and not able to time the market. We propose that the observed pattern can be attributed to a conjunction of the positive effect of the slack in the financial constraint and irrational pricing. Our results confirm this proposition.

Keywords: seasoned equity offerings, long-run performance, investment, risk, timing, financial constraints, overoptimism

JEL Classification: G12, G14, G34

Suggested Citation

Carpentier, Cécile and L'Her, Jean-Francois and Smith, Stephan and Suret, Jean-Marc, Seasoned Equity Offerings, Investment Risk and Financial Constraints (February 4, 2008). Available at SSRN: https://ssrn.com/abstract=1131669 or http://dx.doi.org/10.2139/ssrn.1131669

Cécile Carpentier (Contact Author)

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Jean-Francois L'Her

Canada Pension Plan Investment Board ( email )

One Queen Street East
Suite 2600
Toronto, Ontario M5C 2W5
Canada

Caisse de Depot et Placement du Quebec (CDPQ) ( email )

1000, place Jean-Paul-Riopelle
Montreal, Quebec H2Z 2B3
Canada

Stephan Smith

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Jean-Marc Suret

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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