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Equity Issues and Stock Repurchases of Initial Public Offerings
Author(s) -
Bessler Wolfgang,
Drobetz Wolfgang,
Seim Martin,
Zimmermann Jan
Publication year - 2016
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12053
Subject(s) - initial public offering , equity (law) , business , stock (firearms) , free cash flow , monetary economics , market timing , valuation effects , cash flow , valuation (finance) , finance , common stock , financial system , economics , mechanical engineering , paleontology , context (archaeology) , political science , law , biology , engineering
We investigate the financing strategies and valuation effects of 247 IPO firms at the ‘Neuer Markt’ in Germany that either issued additional equity (SEO) or repurchased shares (SRP) within five years after going public. IPOs issuing additional equity exhibit a temporary outperformance before the event, but negative announcement returns and a long‐run underperformance. In contrast, repurchasing IPOs experience positive announcement returns and no long‐run underperformance. Free cash flow problem resulting from mandatory equity issuance at the IPO explain the SRP decision. Our findings for SEOs are consistent with a staged financing strategy, while we find no evidence for market timing .