The Operating Performance of Firms Conducting Seasoned Equity Offerings

Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering, following a sharp run-up in the year prior to the offering. This article documents that the operating performance of issuing firms shows substa...

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Bibliographic Details
Published in:The Journal of finance (New York) 1997-12, Vol.52 (5), p.1823-1850
Main Authors: LOUGHRAN, TIM, RITTER, JAY R.
Format: Article
Language:English
Subjects:
Capital expenditures
Efficient markets
Equity
Equity financing
Financial economics
Financial performance
Fiscal years
Growth rate
Hypotheses
Impact analysis
Interest income
New stock market listings
Profit margins
Profitability
Profits
Rates of return
Return on assets
Sales growth
Seasoned equity offerings
Securities markets
Statistical median
Stock exchanges
Stock offerings
Stock prices
Studies
Working capital
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Summary:Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering, following a sharp run-up in the year prior to the offering. This article documents that the operating performance of issuing firms shows substantial improvement prior to the offering, but then deteriorates. The multiples at the time of the offering, however, do not reflect an expectation of deteriorating performance. Issuing firms are disproportionately high-growth firms, but issuers have much lower subsequent stock returns than nonissuers with the same growth rate.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1997.tb02743.x