Can the stock market anticipate future operating performance? Evidence from equity rights issues

Rezaul Kabir and Peter Roosenboom

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: This paper examines whether the stock market valuation impact is consistent with subsequent operating performance of firms. We use data for equity rights offerings - the widely adopted flotation method in the Netherlands. We first examine the stock market announcement effect of rights issues and observe that a statistically significant stock price decline takes place when companies announce rights issues. Further stock price decline is also observed during the subscription period. We then analyze post-rights issue operating performance of firms and find that, consistent with the announcement period decline in stock price, rights issuing firms subsequently exhibit a statistically significant decline in their operating performance. Additional investigation of both stock and operating performance decline provides full support for the information asymmetry hypothesis, partial support for the free cash flow hypothesis but no support for the window of opportunity hypothesis.

Keywords: equity offerings; firm performance; rights issues; valuation effect (search for similar items in EconPapers)
JEL-codes: G14 G3 G32 M M41 (search for similar items in EconPapers)
Date: 2002-11-11
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Can the stock market anticipate future operating performance? Evidence from equity rights issues (2003)
Working Paper: Can the Stock Market anticipate Future Operating Performance? Evidence from Equity Rights Issues (2000)
Working Paper: Can the Stock Market anticipate Future Operating Performance? Evidence from Equity Rights Issues (2000)
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