The Puzzle of Frequent and Large Issues of Debt and Equity
110 Pages Posted: 16 Mar 2017 Last revised: 20 May 2017
Date Written: May 19, 2017
More frequent, larger, and more recent debt and equity issues in the prior three years are followed by lower stock returns in the subsequent year. The intercept of the Fama-French 5-factor regression for a value-weighted portfolio of firms with at least three large issues is -0.64% per month. A Fama-MacBeth regression that controls for several firm characteristics shows that firms with three debt issues underperform non-issuers by -0.62% per month, and firms with three equity issues underperform by -1.25%. Earnings announcement returns are lower following more frequent issues, especially equity issues. These patterns are consistent with successful market timing.
Keywords: New Issues Puzzle, Seasoned Equity Offerings, Debt Issues, Equity Issues, Market Efficiency
JEL Classification: G14, G32
Suggested Citation: Suggested Citation