Market Reaction to Equity Offer Reasons: What Information Do Managers Reveal?
Posted: 10 May 2000
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: Suggested Citation