Understanding Stock Price Behavior Around External Financing

45 Pages Posted: 1 Feb 2018 Last revised: 20 Oct 2021

See all articles by Min Cao

Min Cao

Rutgers, The State University of New Jersey - Accounting & Information Systems

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Chelsea Yaqiong Yao

Lancaster University - Lancaster University Management School; New York University (NYU) - Leonard N. Stern School of Business

Date Written: October 18, 2021

Abstract

The negative association between pre-financing price run-ups and post-financing price drift-downs is well documented in the literature. We find that firms experiencing pre-financing run-ups and firms experiencing post-financing drift-downs may not always be the same firms. This reversal pattern is present for firms with low levels of cash flows only. This negative association does not exist for firms with high levels of cash flows. Furthermore, the firms with high levels of cash flows do not experience post-financing long-term underperformance even after controlling for various well-documented anomalies. Our analyses suggest that the level of cash flows plays a critical and previously unrecognized role in the net issuance puzzle.

Keywords: External financing, stock price run-ups, stock underperformance

JEL Classification: G32, G34

Suggested Citation

Cao, Min and Martin, J. Spencer and Yao, Yaqiong, Understanding Stock Price Behavior Around External Financing (October 18, 2021). Available at SSRN: https://ssrn.com/abstract=3109479 or http://dx.doi.org/10.2139/ssrn.3109479

Min Cao

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

96 New England Avenue, #18
Summit, NJ 07901-1825
United States

J. Spencer Martin (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Yaqiong Yao

Lancaster University - Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, LA1 4YX
United Kingdom

HOME PAGE: http://www.chelseayao.com

New York University (NYU) - Leonard N. Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY NY 10012
United States

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