The Puzzle of Frequent and Large Issues of Debt and Equity

Huang, Rongbing; Ritter, Jay R.

doi:10.2139/ssrn.2932970

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

See all articles by Rongbing Huang

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 23, 2020

Abstract

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

Huang, Rongbing and Ritter, Jay R., The Puzzle of Frequent and Large Issues of Debt and Equity (January 23, 2020). Journal of Financial and Quantitative Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2932970 or http://dx.doi.org/10.2139/ssrn.2932970