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Common Stock Offerings and Earnings Expectations: A Test of the Release of Unfavorable Information
Author(s) -
BROUS PETER ALAN
Publication year - 1992
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.1540-6261.1992.tb04668.x
Subject(s) - earnings , equity (law) , stock (firearms) , growth stock , earnings growth , monetary economics , business , earnings response coefficient , economics , financial economics , finance , restricted stock , stock market , biology , mechanical engineering , paleontology , horse , political science , law , engineering
This paper examines the revisions of analysts' forecasts of future earnings around announcements of common stock offerings. The forecasts of the current year earnings are, on average, decreased when firms announce plans to issue additional common stock. The size of the decrease is significantly related to announcement period abnormal stock returns. In contrast, forecasts of the five‐year growth rate of earnings are, on average, unchanged. We interpret these results as being consistent with the claim that equity offering announcements convey unfavorable information regarding the firm's short‐term but not its long‐term earnings prospects.