The Puzzle of Frequent and Large Issues of Debt and Equity

More frequent, larger, and more recent debt and equity issues in the prior 3 fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted (VW) portfolio of firms with at least 3 large issues is −0.63% per month (...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2022-02, Vol.57 (1), p.170-206
Main Authors: Huang, Rongbing, Ritter, Jay R.
Format: Article
Language:English
Subjects:
Debt
Earnings
Earnings announcements
Equity
Purging
Regression analysis
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Summary:More frequent, larger, and more recent debt and equity issues in the prior 3 fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted (VW) portfolio of firms with at least 3 large issues is −0.63% per month (t-stat. = −4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A VW Fama–MacBeth regression shows that firms with 3 equity issues underperform nonissuers by 0.65% per month (t-stat. = −2.65). Earnings announcement returns are low following frequent issues, especially equity issues.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109021000636