In Good Times or in Bad? Market Conditions, Fundamentals, and the Equity Issuance Decision

47 Pages Posted: 11 Sep 2008 Last revised: 8 Sep 2010

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Jay Y. Li

City University of Hong Kong

Date Written: September 2, 2010

Abstract

We show that there are strong interactions between firm fundamental characteristics and market conditions on a firm’s decision to issue equity. Good market conditions can overcome even severe deficiencies in firm fundamentals in the equity issuance decision. A firm whose fundamentals are among the worst 10% of sample firms, but whose recent stock return is in the highest quintile is as likely to issue equity as a firm whose fundamentals are among the best 10% but whose recent stock return is only at the median. Overall our results suggest that good market conditions could mitigate “bad” issuers’ adverse selection problems.

JEL Classification: G32

Suggested Citation

Butler, Alexander W. and Li, Jay Y., In Good Times or in Bad? Market Conditions, Fundamentals, and the Equity Issuance Decision (September 2, 2010). Available at SSRN: https://ssrn.com/abstract=1265703 or http://dx.doi.org/10.2139/ssrn.1265703

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Jay Y. Li

City University of Hong Kong ( email )

Department of Economics and Finance
83 Tat Chee Avenue, Kowloon
Hong Kong
Hong Kong
+852 3442 7978 (Phone)

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