The impact of corporate growth opportunities on the market response to new equity announcements
Bruce Burton (),
A. A. Lonie and
D. M. Power
Applied Financial Economics, 2000, vol. 10, issue 1, 27-36
In this paper we present novel evidence on the stock market reaction to new equity issues in the UK. Using a sample of 116 announcements made during the period 1989-1991 we find evidence of significantly negative market reactions to such news, consistent in both sign and magnitude with earlier US results. We proceed to examine the role of growth opportunities, proxied for by accounting growth, in affecting cross-sectional variation within the negative share price response and provide evidence that, while income growth in particular does have some bearing on announcement period price adjustments, this relationship is not monotonic and appears to be driven by a subset of the worst-performing firms for whom the market reaction to equity issues is especially unfavourable.
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