Corporate Investment and Asset Price Dynamics: Implications for SEO Event Studies and Long‐Run Performance

Murray Carlson, Adlai Fisher and Ron Giammarino

Journal of Finance, 2006, vol. 61, issue 3, 1009-1034

Abstract: We present a rational theory of SEOs that explains a pre‐issuance price run‐up, a negative announcement effect, and long‐run post‐issuance underperformance. When SEOs finance investment in a real options framework, expected returns decrease endogenously because growth options are converted into assets in place. Regardless of their risk, the new assets are less risky than the options they replace. Although both size and book‐to‐market effects are present, standard matching procedures fail to fully capture the dynamics of risk and expected return. We calibrate the model and show that it closely matches the primary features of SEO return dynamics.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (127)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6261.2006.00865.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:61:y:2006:i:3:p:1009-1034

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().