Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Equity Offering Types, Financing Objectives, and Long-Run Stock Performance

Author(s): Sakkakom Maneenop, Chaiyuth Padungsaksawasdi

 We investigate whether issuance type, including seasoned equity offering and private placement, or financing objectives, including investment, recapitalization, and working capital management, have higher impacts on long-run stock performance. We find that issuance type affects long-run stock returns whereas financing objectives do not. Further, private placement (PP) issuers which report a working capital financing objective underperform in the subsequent year compared to seasoned equity offering (SEO) issuers which report an investment financing objective. The Fama-French-Carhart 6-factor regressions of long-short strategy for these two groups provide 0.72% of abnormal returns per month. SEO issuers with investment objective are reliably signaling profitable opportunities whereas other financing issuers are more likely to be opportunistic market timers. The Fama-MacBeth regression that controls for several firm characteristics shows that PP firms with recapitalization and working capital management financing objectives underperform non-issuers by 1.19% and 1.10% per month, respectively. Also, we learn that issuers from the property and construction industry do not suffer from long-run underperformance.

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