TY  - JOUR
AU  - Korajczyk,Robert A.
AU  - Lucas,Deborah J.
AU  - McDonald,Robert L.
TI  - Understanding Stock Price Behavior around the Time of Equity Issues
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3170
PY  - 1989
Y2  - November 1989
UR  - http://www.nber.org/papers/w3170
L1  - http://www.nber.org/papers/w3170.pdf
N1  - Author contact info:
Robert Korajczyk
Department of Finance
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208-2001
Tel: 847/491-8336
Fax: 847/491-5719
E-Mail: r-korajczyk@northwestern.edu

Deborah J. Lucas
MIT Sloan School of Management
100 Main Street, E62-640
Cambridge, MA 02142
Tel: 617/715-4816
E-Mail: dlucas@mit.edu

Robert L. McDonald
Department of Finance  Jacobs Center
Northwestern University
2001 Sheridan Rd.
Evanston, IL  60208-2006
Tel: 847-491-8344
Fax: 847-491-5719
E-Mail: r-mcdonald@northwestern.edu
M1  - published as Robert A. Korajczyk, Deborah Lucas, Robert L. McDonald. "Understanding Stock Price Behavior around the Time of Equity Issues," in R. Glenn Hubbard, editor, "Asymmetric Information, Corporate Finance, and Investment" University of Chicago Press, 1990 (1990)

AB  - 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.
ER  -