Good growth, bad growth: Market reaction to capital raising for REIT expansion

Nick Mansley, Zilong Wang, Xiaoyu Weng and Wenjing Zhang

International Review of Financial Analysis, 2023, vol. 86, issue C

Abstract: When a firm issues security to finance its growth, how does the market react and do investors differentiate between good and bad growth? By manually reading the intended use of proceeds of each security offering of U.S. REITs during 2000–2020, we classify whether the proceeds are used for expansionary or other purposes and analyze whether security offerings that are used to finance sub-optimal growth matter for shareholders' wealth. Adopting an event study method, we find that the expansionary use of proceeds does not affect shareholders' wealth following a debt offering announcement. However, when we distinguish good growth from bad growth, we find that debt financing used for good growth is associated with an increase in shareholders' wealth (+1.734% abnormal return in the 5-day event window) and debt financing used for bad growth is associated with a decrease in shareholders' wealth (−0.563% abnormal return in the 5-day event window). For equity offering announcements, on average, neither the expansionary use of proceeds nor the nature of growth significantly affects shareholder wealth.

Keywords: REIT; Growth; Debt offering; Equity offering; Market reaction (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G23 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000157

DOI: 10.1016/j.irfa.2023.102499

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