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The Market Reaction to Canceled Equity Offerings
Author(s) -
Jensen Marlin R. H.,
Pugh William N.
Publication year - 1995
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1995.tb00826.x
Subject(s) - convertible bond , economics , monetary economics , equity (law) , valuation (finance) , financial economics , debt , valuation effects , equity capital markets , stock price , business , finance , political science , law , paleontology , series (stratigraphy) , biology
Investors appear to respond to both an investment‐opportunity signal and a valuation signal when an equity offering is announced or canceled. While prices fall in response to equity offers and rise when offers are withdrawn, the price changes are greater for offers used to reduce debt than for offers used for capital expenditures. Consistent with asymmetry theory, offerings and withdrawals of convertible debt and utility stock cause less price change when compared to industrial stock offers. Finally, the reaction to cancellations made because of market conditions, indicating undervaluation, are similar to the reaction to cancellations made for other reasons.