Journal of Finance 1997

The Operating Performance of Firms Conducting Seasoned Equity Offerings

Tim Loughran¹; Jay R. Ritter²

¹ University of Notre Dame · ² Loughran is from the University of Iowa, Ritter is from the University of Florida. We thank Brad Barber, David P. Brown, Tom Carroll, Hsuan-chi Chen, Dan Collins, Harry DeAngelo, Linda DeAngelo, Amy Dunbar, Paul Gompers, Charles Hadlock, Robert S. Hansen, Paul Healy, David Ikenberry, Josef Lakonisho

Abstract

Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering, following a sharp run-up in the year prior to the offering. This article documents that the operating performance of issuing firms shows substantial improvement prior to the offering, but then deteriorates. The multiples at the time of the offering, however, do not reflect an expectation of deteriorating performance. Issuing firms are disproportionately high-growth firms, but issuers have much lower subsequent stock returns than nonissuers with the same growth rate.

DOI

10.2307/2329466

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