The Long-Term Performance of Corporate Bonds (and Stocks) Following Seasoned Equity Offerings

Allan C. Eberhart and Akhtar Siddique

The Review of Financial Studies, 2002, vol. 15, issue 5, 1385-1406

Abstract: Previous studies document negative long-term abnormal stock returns following seasoned equity offering (SEO) issuances and conclude that markets are inefficient. Other studies, however, argue that these results are a manifestation of risk mismeasurement (i.e., the bad-model problem), not market inefficiency. We test the efficient market hypothesis (EMH) and avoid the bad-model problem by examining the long-term performance of our sample firms' bonds and stocks following their SEOs. Our results are inconsistent with the EMH. We also provide evidence that SEOs transfer wealth from shareholders to bondholders because SEOs reduce default risk. Copyright 2002, Oxford University Press.

Date: 2002
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