The Puzzle of Frequent and Large Issues of Debt and Equity
122 Pages Posted: 16 Mar 2017 Last revised: 30 Apr 2018
Date Written: April 23, 2018
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 low following frequent issues, especially equity issues, suggesting that investor over-optimism about these issuers is subsequently reduced.
Keywords: New issues puzzle, Seasoned Equity Offerings, Debt issues, Equity issues, Market Efficiency
JEL Classification: G14, G32
Suggested Citation: Suggested Citation