Market Feedback and Equity Issuance: Evidence from Repeat Equity Issues
44 Pages Posted: 8 Aug 2006 Last revised: 4 Aug 2010
Date Written: June 1, 2007
Higher first-year post-issue returns are associated with a significantly higher probability of follow-on equity issuance over the next five years. This result holds when we control for pre-issue returns and other factors known to affect the probability of equity issuance. The result is most consistent with the market feedback hypothesis that a high post-issue return encourages managers to increase the firm's investment because it implies that, in the market's view, the marginal return to the project is high.
Keywords: seasoned equity offering, equity issue, market timing, market feedback
JEL Classification: G30, G31, G32
Suggested Citation: Suggested Citation