Stock Returns and Operating Performance of Securities Issuers

Posted: 23 May 2001

See all articles by Alex P. Tang

Alex P. Tang

Morgan State University

Gil S. Bae

Korea University - Department of Accounting

Jinho Jeong

Hansei University

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance

Abstract

We examine long-run stock returns and operating performance around firms' offerings of common stock, convertible debt, and straight debt over 1985 to 1990. We find that pre-issue abnormal returns are positive and significant for stock issuers, but not for convertible and straight debt issuers. The post-issue mean returns show that common stock and convertible debt issuers experience underperformance during the post-issue periods, but straight debt issuers do not. Consistent with these results, common stock issuers experience the best pre-issue operating performance among all three types of issuers, and operating performance declines during the post-issue periods for common stock and convertible debt issuers. Using a new approach in linear model estimations to correct heteroskedasticity and to adjust for finite sample, we find a positive relation between post-issue operating performance and issue-period stock price reactions. The results suggest that future operating performance is anticipated at the issue and that securities issues provide information on issuers' future performance.

JEL Classification: G14, G32

Suggested Citation

Tang, Alex P. and Bae, Gil Soo and Jeong, Jinho and Sun, Huey-Lian, Stock Returns and Operating Performance of Securities Issuers. Available at SSRN: https://ssrn.com/abstract=268252

Alex P. Tang (Contact Author)

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

Gil Soo Bae

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

Jinho Jeong

Hansei University ( email )

604-5, Dangjung-dong, Kunpo-si
Department of Business Administration
Kyunggi-do 435-742
Korea
82-343-50-5051 (Phone)
82-343-50-5124 (Fax)

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance ( email )

Baltimore, MD 21251
United States
443-885-3971 (Phone)
410-319-3721 (Fax)

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