Investment-Based Underperformance Following Seasoned Equity Offerings

Evgeny Lyandres, Le Sun, Lu Zhang

NBER Working Paper No. 11459
Issued in July 2005
NBER Program(s):   AP

Adding a return factor based on capital investment into standard, calendar-time factor regressions makes underperformance following seasoned equity offerings largely insignificant and reduces its magnitude by 37-46%. The reason is that issuers invest more than nonissuers matched on size and book-to-market. Moreover, the low-minus-high investment-to-asset factor earns a significant average return of 0.37% per month. Our evidence suggests that the underperformance results from the negative investment-expected return relation, as predicted by Carlson, Fisher, and Giammarino (2005).

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This paper was revised on February 3, 2006

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