Risk, Timing and Overoptimism in Private Placements and Public Offerings

Cécile Carpentier, Jean-François L'Her, Stephan Smith and Jean-Marc Suret

CIRANO Working Papers from CIRANO

Abstract: We examine whether risk, timing or mispricing hypotheses can explain the underperformance of private and public equity issuers, in Canada, where both categories share several common characteristics. Adding an investment risk factor to the TFPM reduces, but does not eliminate, the underperformance. Four arguments, including financial constraints and poor operating performance, do not support the timing hypothesis. Our results for their part support the mispricing hypothesis. The market correctly assesses the investment projects of value firms, but tends to overestimate those of glamour firms. For both types of issues, the underperformance is explained by investors' overoptimism relative to glamour/high-investment firms. Nous tentons de vérifier laquelle des hypothèses de risque, de timing ou d'irrationalité peut expliquer la sous performance à long terme des émetteurs de placement privés et public au Canada, où ces deux types de financement ont en commun plusieurs caractéristiques. L'ajout d'un facteur d'investissement au modèle à trois facteurs réduit, mais n'élimine pas, cette sous performance. Quatre arguments, incluant ceux des contraintes financières et de la faible performance opérationnelle contredisent l'hypothèse du timing. Nos résultats tendent à confirmer l'hypothèse de l'irrationalité. Le marché évalue correctement les projets d'investissement des sociétés de valeur, mais sur estime ceux des titres de croissance. Pour les deux types de financement, la sous performance est expliquée par le sur optimisme des investisseurs au sujet des entreprises de croissance à fort niveau d'investissement.

Keywords: Private placements; seasoned equity offerings; long-run performance; timing; overoptimism; risk; Placements privés; placements publics subséquents; performance à long terme; fenêtre d'opportunité; sur optimisme; risque (search for similar items in EconPapers)
JEL-codes: G12 G14 G34 (search for similar items in EconPapers)
Date: 2007-11-01
New Economics Papers: this item is included in nep-cbe, nep-cfn and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2007s-27

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