Long-Run Performance Following Private Placements of Equity

Posted: 27 Dec 2001

See all articles by James S. Linck

James S. Linck

Southern Methodist University (SMU) - Finance Department

Michael G. Hertzel

Arizona State University (ASU) - Finance Department

Michael L. Lemmon

University of Utah - Department of Finance

Lynn L. Rees

Utah State University - Huntsman School of Business

Multiple version iconThere are 2 versions of this paper

Abstract

Public firms that place equity privately experience positive announcements effects, with negative post-announcement stock-price performance. This finding is inconsistent with the underreaction hypothesis. Instead, it suggests that investors are overoptimistic about the prospects of firms issuing equity, regardless of the method of issuance. Further, in contrast to public offerings, private issues follow periods of relatively poor operating performance. Thus, investor overoptimism at the time of private issues is not due to the behavioral tendency to overweight recent experience at the expense of long-term averages.

Keywords: Long-run performance, Market efficiency, Private placements, Behavioral finance, Equity issues, Operating performance

JEL Classification: G12, G14, G32

Suggested Citation

Linck, James S. and Hertzel, Michael G. and Lemmon, Michael L. and Rees, Lynn L., Long-Run Performance Following Private Placements of Equity. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=294042

James S. Linck (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Michael G. Hertzel

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-6869 (Phone)
602-965-8539 (Fax)

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Lynn L. Rees

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
435-797-2272 (Phone)

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