NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Understanding Stock Price Behavior around the Time of Equity Issues

Robert A. Korajczyk, Deborah J. Lucas, Robert L. McDonald

NBER Working Paper No. 3170
Issued in November 1989
NBER Program(s):   ME

It is well-documented that stock prices rise significantly prior to an equity issue, and fall upon announcement of the issue. We expand on earlier studies by using a large sample which includes OTC firms, by examining the cross-sectional properties of the price rise, and by using accounting data to track the pattern of debt ratios and Tobin's q around the time of equity issues. We consider a number of explanations for our results, and conclude that the data is largely consistent with informational models in which managers are asymmetrically informed about the value of the firm. Surprisingly, debt ratios do not increase prior to equity issues, suggesting that strained debt capacity is not the main reason for equity issues. The behavior of Tobin's q is consistent with equity issues being used to finance new investments.

download in pdf format
   (233 K)

download in djvu format
   (192 K)

email paper

This paper is available as PDF (233 K) or DjVu (192 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3170

Published:

Users who downloaded this paper also downloaded these:
Korajczyk, Lucas, and McDonald Understanding Stock Price Behavior around the Time of Equity Issues
Lucas and McDonald w3169 Equity Issues and Stock Price Dynamics
Korajczyk, Lucas, and McDonald w2727 The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence
Goetzmann, Renneboog, and Spaenjers w15502 Art and Money
Myers and Majluf w1396 Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us