The Long-Run Performance of Secondary Equity Issues: A Test of the Windows of Opportunity Hypothesis

Posted: 5 Aug 2004

See all articles by Jonathan Clarke

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

Craig G. Dunbar

Ivey Business School, Western University

Kathleen M. Kahle

University of Arizona - Department of Finance

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Abstract

We examine long-run stock and operating performance following secondary equity offerings. For a subsample of secondary issuers in which the seller is an insider, both three- and five-year post-issue abnormal stock returns are significantly negative. The findings are robust to alternative long-run abnormal return measurement methodologies. The abnormal returns are large relative to the initial market reaction (mean and median five-year abnormal returns of -33.33% and -73.80%, respectively). The operating performance of these firms also declines subsequent to the issue. This supports the hypothesis that the negative performance of secondary equity offerings can be attributed to managers exploiting windows of opportunity by issuing overvalued shares.

Keywords: secondary equity issues, long-run performance

JEL Classification: G32

Suggested Citation

Clarke, Jonathan and Dunbar, Craig G. and Kahle, Kathleen M., The Long-Run Performance of Secondary Equity Issues: A Test of the Windows of Opportunity Hypothesis. Journal of Business, Vol. 77, No. 3, July 2004, Available at SSRN: https://ssrn.com/abstract=572551

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business ( email )

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Craig G. Dunbar (Contact Author)

Ivey Business School, Western University ( email )

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Kathleen M. Kahle

University of Arizona - Department of Finance ( email )

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Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

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