Seasoned Equity Offerings, Investment Risk and Financial Constraints
33 Pages Posted: 19 May 2008
Date Written: February 4, 2008
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: Suggested Citation