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
Date Written: September 2, 2010
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: Suggested Citation