54 Pages Posted: 25 May 2006
Date Written: July 2005
Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).
Suggested Citation: Suggested Citation
Lyandres, Evgeny and Sun, Le and Zhang, Lu, Investment-Based Underperformance Following Seasoned Equity Offerings (July 2005). NBER Working Paper No. w11459. Available at SSRN: https://ssrn.com/abstract=755695