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Are Financial Markets Overly Optimistic about the Prospects of Firms That Issue Equity? Evidence from Voluntary versus Involuntary Equity Issuances by Banks
Author(s) -
Cornett Marcia Millon,
Mehran Hamid,
Tehranian Hassan
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00085
Subject(s) - equity (law) , earnings , business , stock (firearms) , stock market , accounting , monetary economics , economics , political science , law , mechanical engineering , paleontology , horse , biology , engineering
This paper examines firm performance around announcements of common stock issues. We study the banking industry in which some stock issues are made voluntarily by managers, and other issues are involuntary. We find that banks that voluntarily issue common stock experience a significant drop in the matched adjusted operating performance following the issue, a significant drop in benchmark firms' adjusted stock prices following the issue, and systematically negative market reactions to post‐issue quarterly earnings announcements. Banks that issue common stock involuntarily experience values for these measures that are not significantly different from those of the benchmark firm(s).