The Puzzle of Frequent and Large Issues of Debt and Equity
Journal of Financial and Quantitative Analysis, Forthcoming
115 Pages Posted: 16 Mar 2017 Last revised: 5 May 2020
Date Written: January 23, 2020
More frequent, larger, and more recent debt and equity issues in the prior three fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted portfolio of firms with at least three large issues is -0.63% per month (t-statistic =-4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A value-weighted Fama-MacBeth regression shows that firms with three equity issues underperform non-issuers by 0.65% per month (t-statistic =-2.65). Earnings announcement returns are low following frequent issues, especially equity issues.
Keywords: New issues puzzle, Seasoned Equity Offerings, Debt issues, Equity issues, Long-run performance, Market efficiency
JEL Classification: G14, G32
Suggested Citation: Suggested Citation