Corporate Earnings And Financings: An Analysis Of Cancelled Versus Completed Offerings

Abstract

Testing the earnings downturn and overvaluation hypotheses, we examine the long-term behavior of earnings around cancelled offers of firm financings of straight debt, convertible debt, and common stock. Although we find evidence consistent with both hypotheses in our completed offerings, the earnings pattern around cancelled offerings is consistent with overvaluation rather than earnings downturn. We find an unexpected earnings drop following the cancellation, however, we find no evidence shareholders correctly anticipate the size of the earnings downturn.