Corporate Performance Following Stock Offerings

Aigbe Akhigbe, Jeff Madura and Stephen P Zera

Review of Quantitative Finance and Accounting, 1996, vol. 7, issue 3, 38 pages

Abstract: There is substantial evidence that stock offerings contain a negative signal, based on numerous studies on the immediate market reaction to the announcement. These studies document the market's ex ante view of how the offering will affect the firm. Our objective is to determine whether the adverse signal is accurate by measuring long-term valuation effects following the stock offering. We find a strong negative valuation effect that accumulates to -30.28 percent after 60 months following the stock offering. These long-term effects were more unfavorable for firms that (1) have relatively large stock offerings, (2) have more free cash flow, (3) experienced larger stock price runups before the offering, and (4) had higher market to book value ratios prior to the offering. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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