Announcement Effects of New Equity Issues and the Use of Intraday Price Data

Michael J. Barclay and Robert H. Litzenberger

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: This study develops procedures for testing announcement effects on intraday stock returns. Intraday stock returns surrounding announcements of new issues of equity and debt are examined. During the first fifteen minutes following new equity issue announcements, there is an abnormally large number of transactions, high volume, and a -1.5% average return. There is a small, but statistically significant negative average return during the hour preceding the announcements and the average return during the three hour period surrounding the announcements is between -2.3% and -3.0% depending on the measurement procedure. The size of the offering, the stated purpose of the issue and the estimated profitability of new investments do not have a significant inspect on stock returns. New debt issue announcements also do not have a significant impact on stock returns. After the issuance of new shares, there is a significant price recovery of 1.5%. This evidence is inconsistent with many theoretical rationales for the negative price impact of new equity issue announcements.

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