The Long-Term Performance of Corporate Bonds (and Stocks) Following Seasoned Equity Offerings

Posted: 7 Feb 2002

See all articles by Allan Eberhart

Allan Eberhart

Georgetown University

Akhtar R. Siddique

Government of the United States of America - Risk Analysis Division

Abstract

Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances, and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurment (i.e., the bad model problem), not market inefficiency. We test the efficient market hypothesis (EMH), and avoid the bad model problem, by examining the long-term performance of our sample firms' bonds and stocks following their SEOs. Our results are inconsistent with the EMH. We also provide evidence that SEOs transfer wealth from shareholders to bondholders because SEOs reduce default risk.

Keywords: Seasoned Equity Offering, Bonds, Market Efficiency, Wealth Transfer

Suggested Citation

Eberhart, Allan and Siddique, Akhtar R., The Long-Term Performance of Corporate Bonds (and Stocks) Following Seasoned Equity Offerings. Available at SSRN: https://ssrn.com/abstract=299301

Allan Eberhart (Contact Author)

Georgetown University ( email )

McDonough School of Business
Washington, DC 20057
United States
202-687-4584 (Phone)

Akhtar R. Siddique

Government of the United States of America - Risk Analysis Division ( email )

400 7th Ave
Washington, DC 20219
United States
202-649-5526 (Phone)

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