The Puzzle of Frequent and Large Issues of Debt and Equity
110 Pages
Posted: 16 Mar 2017
Last revised: 20 May 2017
Kennesaw State University - Michael J. Coles College of Business
University of Florida - Department of Finance, Insurance and Real Estate
Date Written: May 19, 2017
Abstract
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
Huang, Rongbing and Ritter, Jay R., The Puzzle of Frequent and Large Issues of Debt and Equity (May 19, 2017). Available at SSRN: https://ssrn.com/abstract=2932970 or http://dx.doi.org/10.2139/ssrn.2932970
