Understanding stock price behavior around external financing

Min Cao, J. Spencer Martin and Yaqiong Yao

Journal of Corporate Finance, 2025, vol. 91, issue C

Abstract: The negative association between pre-financing price run-ups and post-financing price drift-downs is well documented in the literature. We find that firms experiencing pre-financing run-ups and firms experiencing post-financing long-term underperformance may not always be the same firms. The firms with high levels of cash flows experience pre-financing price run-ups but do not suffer post-financing price drift-downs. On the other hand, firms with low cash flow levels do not have pre-financing price run-ups but experience post-financing long-term underperformance even after controlling for various well-documented anomalies. Profitability analyses around external financing suggest that high-cash-flow firms' pre-financing price run-ups could be driven by their robust profitability, whereas low-cash-flow firms' post-financing underperformance might be attributable to their losses.

Keywords: External financing; Net issuance puzzle; Stock price run-ups; Stock underperformance (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:91:y:2025:i:c:s0929119924001925

DOI: 10.1016/j.jcorpfin.2024.102730

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