Market Reaction to Equity Offer Reasons: What Information Do Managers Reveal?

Posted: 10 May 2000

See all articles by Marlin R.H. Jensen

Marlin R.H. Jensen

Auburn University

Claire E. Crutchley

Auburn University

Carl D. Hudson

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Abstract

Prior studies have had limited success explaining the negative market reaction to common stock announcements using firm and offer specific variables. We employ a piecewise linear model to test the relationship between announcement returns and firm and offer specific variables by specific offer reason as stated by management. We find evidence that managers are signalling the quality of the new investment when issuing equity for the offer-motive capital expenditures; this is support for the announcement of the equity issue being a signal of wasteful investment. We also find that the announcement of equity issues signals overvaluation when the equity offer is for general purposes.

JEL Classification: G30

Suggested Citation

Jensen, Marlin R.H. and Crutchley, Claire E. and Hudson, Carl D., Market Reaction to Equity Offer Reasons: What Information Do Managers Reveal?. JOURNAL OF ECONOMICS AND FINANCE, Vol 18 No 3. Available at SSRN: https://ssrn.com/abstract=6208

Marlin R.H. Jensen (Contact Author)

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-3006 (Phone)

Claire E. Crutchley

Auburn University ( email )

415 West Magnolia Avenue
303 Lowder Business Building
Auburn, AL 36849
United States
334-844-3002 (Phone)
334-844-4960 (Fax)

Carl D. Hudson

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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