Investment Opportunities and the Market Reaction to Equity Offerings
This paper examines the relation between the market reaction to primary seasoned equity offerings and alternative measures of the profitability of the issuing firm's growth opportunities. While the sample offerings display a positive relation between announcement period prediction errors and several ex ante measures of growth opportunities, this relation is not monotonic and appears to be driven by a small subset of younger, higher growth firms, whose announcement effects are insignificantly different from zero. For the remainder of the sample firms, there is no relation between the estimated profitability of new investment and the market reaction to announced equity offerings. Moreover, announcement effects are nonpositive regardless of how profitable investment opportunities are expected to be. These findings collectively suggest that investment opportunities play, at best, a minor role in explaining the cross-sectional distribution of equity offering announcement effects.
Year of publication: |
1994
|
---|---|
Authors: | Denis, David J. |
Published in: |
Journal of Financial and Quantitative Analysis. - Cambridge University Press. - Vol. 29.1994, 02, p. 159-177
|
Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
Saved in:
Saved in favorites
Similar items by person
-
The dynamics of corporate diversification
Basu, Nilanjan, (2003)
-
The choice among traditional Chapter 11, prepackaged bankruptcy, and out-of-court restructuring
Yost, Keven Edward, (2002)
-
Pecking order in the sources of corporate borrowing: Evidence from new debt issues
Mihov, Vassil Tontchev, (2000)
- More ...