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The Puzzle of Frequent and Large Issues of Debt and Equity

110 Pages Posted: 16 Mar 2017 Last revised: 20 May 2017

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: 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

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

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Mail Drop #0403
Kennesaw, GA 30144
United States

Jay Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/ritter

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