SEOs: Bearers of long-term bad news

Mittoo (1996) examined the market's reaction to Canadian seasoned equity offerings (SEOs) over a two-day period. She concluded that issues are the bearers of bad news for both shareholders and portfolio managers alike. To determine whether Mittoo's warning holds over a longer horizon, the...

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Bibliographic Details
Published in:Canadian Investment Review 2004-04, Vol.17 (1), p.20
Main Authors: Desrosiers, Stephanie, Jean-Francois L'Her, Sauriol, Lorraine
Format: Article
Language:English
Subjects:
Abnormal returns
Benchmarks
Calendars
Earnings trends
Economic models
Equity
Financial performance
Initial public offerings
Investment policy
Investments
New stock market listings
Securities buybacks
Stocks
Studies
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Summary:Mittoo (1996) examined the market's reaction to Canadian seasoned equity offerings (SEOs) over a two-day period. She concluded that issues are the bearers of bad news for both shareholders and portfolio managers alike. To determine whether Mittoo's warning holds over a longer horizon, the abnormal performance of SEOs are examined over periods of 12, 24, and 36 months following the month of the issue. In addition, issuing firms' performance over the 12-month period preceding the SCO are assessed. Finding an abnormal downward drift over the 36-month period following the month of the issue will inevitably cast doubt on the validity of the earnings prospects prior to the issue. Overall, it is found that Canadian issuing firms experience positive abnormal returns in the year preceding the SEO and negative abnormal returns over a 36-month horizon following the issue. The results suggest that managers time their issues to profit from windows of opportunity created by optimistic investors.
ISSN:0840-6863