Theory posits that when managers anticipate excess capacity, average q becomes a biased estimator of marginal q as the potential for underutilizing new capital reduces the marginal benefit of investing. After correcting for this source of measurement error, the explanatory power of Tobin's q substantially improves in time‐series and cross‐sectional regressions as well as in out‐of‐sample tests. These findings, together with a secular erosion in capacity utilization, help explain why corporate investment rates have been declining for decades despite average q increasing significantly. Our analysis indicates that economic rigidities have contributed to the persistent erosion in capacity utilization.

After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Many of these firms have been public only a short period of time. Moreover, once listed, several firms make seasoned equity offerings. However, the negative post-listing drift is not a manifestation of the new-equity issuance puzzle. Instead, the negative post-listing drift appears to be the result of managers opportunistically choosing when to apply for listing. The barriers posed by initial listing requirements appear to cause some managers to apply for listing prior to a decline in performance. These requirements are more binding in smaller, less widely held stocks, the same stocks for which the drift is most severe. For large, more widely held firms, the post-listing drift is absent. This finding of opportunistic behavior is strikingly similar to the market timing arguments that have been offered to explain the poor performance observed following equity offerings.

After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Although many listing firms issue equity around the time of listing, postlisting performance is not entirely explained by the equity issuance puzzle. Similar to the conclusions regarding other long-run phenomena, poor postlisting performance appears related to managers timing their application for listing. Managers of smaller firms, where initial listing requirements may be more binding, tend to apply for listing before a decline in performance. Poor postlisting performance is not observed in larger firms.

After firms move trading in their stock to the American or New York Stock Exchanges, stock returns are generally poor. Although many listing firms issue equity around the time of listing, post‐listing performance is not entirely explained by the equity issuance puzzle. Similar to the conclusions regarding other long‐run phenomena, poor post‐listing performance appears related to managers timing their application for listing. Managers of smaller firms, where initial listing requirements may be more binding, tend to apply for listing before a decline in performance. Poor post‐listing performance is not observed in larger firms.