Managers’ Private Information, Investor Underreaction and Long‐Run SEO Performance

35 Pages Posted: 11 Oct 2013

See all articles by Pawel Bilinski

Pawel Bilinski

City University London - Sir John Cass Business School; University of Bristol

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Date Written: November 2013

Abstract

For a sample of 2,879 SEOs by US stocks from 1970 to 2004, this paper decomposes an average three‐year post‐issue buy‐and‐hold abnormal return of −25.9% (relative to size‐ and B/M‐matched non‐issuing stocks) into two components. One component, representing 41% of the total, is due to lower risk exposure. The second component, representing the remaining 59%, is abnormal performance related to the surprise element of the issue decision, which the paper attributes to managers’ private information that the market does not incorporate into the announcement return. This second component results in abnormal returns during the 16 months after the offering.

Keywords: managerial private information, investor underreaction, seasoned equity issues, long‐run performance

Suggested Citation

Bilinski, Pawel and Strong, Norman Charles, Managers’ Private Information, Investor Underreaction and Long‐Run SEO Performance (November 2013). European Financial Management, Vol. 19, Issue 5, pp. 956-990, 2013. Available at SSRN: https://ssrn.com/abstract=2338846 or http://dx.doi.org/10.1111/j.1468-036X.2011.00616.x

Pawel Bilinski (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Norman Charles Strong

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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