Self-Selection and Stock Returns Around Corporate Security Offering Announcements

53 Pages Posted: 20 Feb 2011 Last revised: 26 Jan 2012

See all articles by Marie Dutordoir

Marie Dutordoir

University of Manchester - Manchester Business School

Laurie Simon Hodrick

Columbia Business School - Finance and Economics

Date Written: January 25, 2012

Abstract

Stock returns around security offering announcements are conditional on firms’ self-selection into a particular security type. We use a switching regression methodology on a data set of U.S. straight debt, convertible debt, and seasoned equity offerings to estimate counterfactual announcement returns that would be obtained had the same firms instead opted for alternative financing. Our evidence is consistent with firms choosing the financing type with the least negative expected announcement effect. Our results justify some observed pecking order behavior patterns better than do actual announcement effects, yet also suggest that for some firms equity-like financing may be preferred to debt-like financing.

Keywords: Corporate Security Offering Announcement Effects, Pecking Order, Security Choice, Self-Selection

JEL Classification: G14, G32

Suggested Citation

Dutordoir, Marie and Hodrick, Laurie Simon, Self-Selection and Stock Returns Around Corporate Security Offering Announcements (January 25, 2012). Columbia Business School Research Paper No. 12-11. Available at SSRN: https://ssrn.com/abstract=1764504 or http://dx.doi.org/10.2139/ssrn.1764504

Marie Dutordoir

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Laurie Simon Hodrick (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
246
Abstract Views
1,104
rank
127,386
PlumX Metrics