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Is the Market Surprised by Poor EarningsRealizations following Seasoned EquityOfferings?

Published online by Cambridge University Press:  06 April 2009

David J. Denis  and
Atulya Sarin
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Abstract

We examine the stock price reaction to earningsannouncements in the five years following seasonedequity offerings (SEOs). On average, post-SEOearnings announcements are met with a significantlynegative abnormal stock price reaction. Althoughthis negative reaction accounts for adisproportionately large portion of long-runpost-SEO abnormal stock returns, on average,abnormal stock price reactions to post-seo earningsannouncements are reliably negative only within thesmallest quartile of equity issuers. For smallfirms, therefore, these findings are broadlyconsistent with the hypothesis that firms issueequity when the market overestimates the firm'sfuture earnings perfomance.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 2 , June 2001 , pp. 169 - 193
Copyright
Copyright © School of Business Administration, University of Washington 2001

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Footnotes

*

Karnnert Graduate School of Management, PurdueUniversity, West Lafayette, IN 47907, and LeaveyCollege of Business and Administration, SantaClara University, Santa Clara, CA 95053,Respectively. We are grateful for helpful commentsreceived from Brad Barber, Diane Denis, GregKadlec, Jonathan Karpoff (the editor), DavidLesmond, Tim Loughran, Raghu Fau, Jay Ritter,Sunil Wahall, Susan Watts, an Anonymous Referee,and Seminar Participants at Indiana University,Tulane University, and the University ofMissouri.

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