An Empirical Investigation of the Relationship between Net Stock Issues and Returns in India

Sanjay Sehgal and Asheesh Pandey
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Sanjay Sehgal: Sanjay Sehgal is Professor of Finance at Department of Financial Studies, University of Delhi, South Campus, Delhi, India. E-mail: sanjayfin15@gmail.com
Asheesh Pandey: Asheesh Pandey is Associate Professor Finance at Fortune Institute of International Business, Delhi, India. E-mail: asheeshpandey@rediffmail.com

Management and Labour Studies, 2013, vol. 38, issue 4, 505-515

Abstract: In this article, we focus on net stock issues which is a relatively unexplored asset pricing anomaly. We examine the relationship between net stock issues and returns in the Indian context using data for BSE 500 stocks from 1995 to 2012. The relationship between size, value and momentum attributes and stock return is confirmed, which is consistent with prior literature. We specifically find a negative relationship between net stock issues and returns after controlling for other firm characteristics, thus implying that companies with larger public offerings provide lower post-event returns. The net stock issues attribute is empirically associated with size and value characteristics. Large firms and low price to book (P/B) or relatively distressed firms tend to make bigger public offerings. While the former may do it to finance business expansion plans, the latter rely more on external financing owing to weak earnings record. Our findings are pertinent for policymakers, market practitioners and academicians. The study contributes to equity market anomaly literature for emerging markets.

Keywords: Net stock issues; Fama–French model; equity market anomaly; asset pricing; firm characteristics (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:sae:manlab:v:38:y:2013:i:4:p:505-515

DOI: 10.1177/0258042X13514888

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