Stock Price Behavior of Pure Capital Structure Issuance and Cancellation Announcements

Hull, Robert M.

doi:10.1111/j.1475-6803.1994.tb00204.x

Cited by 7 publications

(31 citation statements)

References 18 publications

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“…In an extension of Mikkelson and Partch (1986), Hull and Fortin (1993/1994) examine 150 OTC common stock offerings occurring between 1973and 1987. Included in their analysis are 100 primary stock offerings and 50 combination offerings.…”

Section: B Otc Researchmentioning

confidence: 99%

“…These two studies reach different conclusions. Mikkelson and Partch (1986) find that offering costs are a relatively small portion of the negative announcement period return, while Hull andFortin (1993/1994) show otherwise. This disagreement motivates our research as we aim to explain the different conclusions concerning the wealth impact of issue costs.…”

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confidence: 97%

“…These findings suggest that the collective impact of the negative wealth effects from managerial signaling may be less important than generally assumed. Mikkelson and Partch (1986) and Hull andFortin (1993/1994) are the only studies to examine in detail the impact of issue costs on announcement period stock returns for equity offerings. These two studies reach different conclusions.…”

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confidence: 99%

“…and Hull andFortin (1993/1994) are the only studies to examine in detail the impact of issue costs on announcement period stock returns for equity offerings. These two studies reach different conclusions.…”

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confidence: 99%

“…The mean fall in stock value represents 61% of the mean fall in stock value. 1 Like others (e.g., Hull andFortin, 1993/1994;and Hull and Moellenberndt, 1994), we classify an observation as a combination offering when the primary component of the common stock offering is accompanied by a registered secondary component that is at least 10% of the combined primary and secondary components.…”

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Issue Costs and Common Stock Offerings

Hull¹,

Kerchner²

1996

Financial Management

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Prior research of common stock offerings reaches different conclusions concerning the impact of issue costs on stock value. We identify factors that can best explain the different findings-most prominent are the issue costs measure and the listing. We investigate 323 common stock offerings and find that $61 of every $100 fall in stock value can be attributed to issue costs. The respective dollar amounts for the samples of OTC, AMEX, and NYSE firms are $72, $69, and $38. These findings suggest that the collective impact of the negative wealth effects from managerial signaling may be less important than generally assumed. Mikkelson and Partch (1986) and Hull andFortin (1993/1994) are the only studies to examine in detail the impact of issue costs on announcement period stock returns for equity offerings. These two studies reach different conclusions. Mikkelson and Partch (1986) find that offering costs are a relatively small portion of the negative announcement period return, while Hull andFortin (1993/1994) show otherwise. This disagreement motivates our research as we aim to explain the different conclusions concerning the wealth impact of issue costs. In the process we hope to understand the situations for which issue costs can significantly impact common stock value.We begin our research by examining the literature in order to discover factors that can help explain the different conclusions. We identify four potentially relevant factors: the measure of issue costs; the listing of the firms in the sample; the percentage change in outstanding common stock caused by the new offering; and the inclusion or exclusion of combination offerings.We select a sample of 323 common stock offerings and investigate this sample in light of the above four factors. First, we use (for the most part) an issue costs measure that is a compromise between those used by the two prior studies. This measure includes cash flotation costs (consisting of the underwriting spread and fees associated with administration, registration, and legal services) and underpricing. The use of the term "cash" captures the fact that these costs cause an immediate cash compensation for investment bankers. Second, in our analysis, we include an examination of samples of OTC (n=106), AMEX (n=107), and NYSE (n=110) firms. Third, we screen out issues that involve very small changes in common shares (and for which an issue costs effect is not of economic significance). Finally, we investigate both primary and combination offerings. We summarize our results when cash flotation costs and underpricing are used to measure issue costs. When testing our total sample, we find that the average fall in common share value that can be attributed to issue costs is -1.59%, as compared to the average twoday fall in stock value of -2.62%. The mean fall in stock value represents 61% of the mean fall in stock value.1 Like others (e.g., Hull andFortin, 1993/1994;and Hull and Moellenberndt, 1994), we classify an observation as a combination offering when the primary component of ...

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Section: B Otc Researchmentioning

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