Investment-Based Underperformance Following Seasoned Equity Offerings
Boston University; Interdisciplinary Center (IDC) Herzliyah
State Street Corporate - State Street Global Advisors
Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)
NBER Working Paper No. w11459
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).
Number of Pages in PDF File: 54
Date posted: May 25, 2006