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Equity Issues and Stock Price Dynamics
Author(s) -
LUCAS DEBORAH J.,
McDONALD ROBERT L.
Publication year - 1990
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/j.1540-6261.1990.tb02425.x
Subject(s) - equity (law) , economics , deadweight loss , welfare , stock price , financial economics , stock (firearms) , monetary economics , mechanical engineering , paleontology , series (stratigraphy) , political science , law , market economy , biology , engineering
This paper presents an information‐theoretic, infinite horizon model of the equity issue decision. The model predicts that (a) equity issues on average are preceded by an abnormal positive return on the stock, although for some firms the issue is preceded by a loss; (b) equity issues on average are preceded by an abnormal rise in the market; and (c) the stock price drops at the announcement of an issue. The model provides a measure of the welfare cost of asymmetric information; the welfare loss may be small even if the price drop at issue announcement is large.