Equity Private Placements and Long-Term Post-Issue Operating Flow Underperformance

摘要

Consistent with public offerings, managers issue common stock privately when their shares are already overvalued. Public investors unsoundly view the announcement as a signal of under valuation, and further value the shares upward. Matched non-issuing firms in the same industry and operating performance decile prior to announcement have the same issue and post issue operating performance levels. Issuing company stocks thereafter under perform their non-issuing counterparts even though they perform equivalently over the post-announcement period. Placement and company characteristics related to pre through post announcement operating performance versus those related to abnormal stock returns either differ or are misconstrued.