Stock Returns and Operating Performance of Securities Issuers

Abstract

We examine long-run stock returns and operating performance around firms' offerings of common stock, convertible debt, and straight debt from 1985 to 1990. We find that pre-issue abnormal returns are positive and significant for stock issuers, but not for convertible and straight debt issuers. The post-issue mean returns show that common stock and convertible debt issuers experience underperformance during the post-issue periods, but straight debt issuers do not. Consistent with these results, common stock issuers experience the best pre-issue operating performance among all three types of issuers, and operating performance declines during the post-issue periods for common stock and convertible debt issuers. Using a new approach in linear model estimations to correct heteroskedasticity and to adjust for finite sample, we find a positive relation between post-issue operating performance and issue-period stock price reactions. The results suggest that future operating performance is anticipated at the issue and that securities issues provide information on issuers' future performance. The Southern Finance Association and the Southwestern Finance Association.

Institutional investors as suppliers of equity-linked capital: Evidence from privately placed convertible debt

“…A number of studies provide evidence of abnormal stock performance following issues of convertible debt (e.g., Lee and Loughran, 1998;McLaughlin et al, 1998;Spiess and Affleck-Graves, 1999;Eckbo et al, 2000;Bae et al, 2002). In addition, McLaughlin et al and Bae et al document post-issue declines in operating performance subsequent to convertible debt issues.…”

The Issuance of German SME Bonds and its Impact on Operating Performance

“…Even though stock returns are not observable for the majority of firms in our sample, note that Bae et al (2002) show that operating performance and stock performance behave qualitatively similar for these types of analyses. 4 For example, López-Gracia and Sogorb-Mira (2008) found that (Spanish) SMEs behave like predicted by the pecking order theory, which is based on the work by Myers and Majluf (1984).…”

“…In Hansen and Crutchley (1990), the authors reported a financing year downturn in earnings, concluding that firms issue debt to survive bad years. McLaughlin et al (1998) as well as Bae et al (2002) showed that all types (e.g. equity, convertibles, debt, etc.)…”

UK retailers: What motivates the decision to raise finance?

“…Companies therefore appear to time their financings to take advantage of favourable market conditions. Also, a number of studies have found that earnings performance declines after a financing announcement (Hansen and Crutchley, 1990;Patel et al, 1993;Loughran and Ritter, 1997;McLaughlin et al, 1996McLaughlin et al, , 1998aBae et al, 2002). This again would appear supportive of timing playing a role in the financing announcement.…”

“…The principal results are that companies do indeed follow a pecking order (Kester, 1986;Burton et al, 1993;ShyamSunder and Myers, 1995;Slovin et al, 2000); with the share price declining upon announcement of a share issue (Asquith and Mullins, 1986;Hudson et al, 1993;Spiess and Affleck-Graves, 1995;Bae et al, 2002). 6 Contradictory evidence has been generated with respect to debt issues: with one group of papers finding no effect, as expected under pecking order theory (Dann and Mikkelson, 1984;Eckbo, 1986;Mikkelson and Partch, 1986); and others finding a positive announcement effect to debt issues (Kim and Stulz, 1988;Ikenberry et al, 1995;Bae et al, 2002). Supporting evidence for the hypothesis that companies tend to issue when asymmetries are minimised has been found by a number of studies (Korajczyk et al, 1991;Dierkins, 1991;Manuel et al, 1993).…”