Abstract
We investigate whether the market sentiment and/or the specific operating performance of firms that conducted an equity issue on the Spanish stock market during the period 1993-2000 are related to the long-run stock-return underperformance in the year following the issue of small and medium firms. Our results reveal that equity issues were conducted by large firms just when the market showed optimistic expectations towards large firms in general. This overoptimism towards large issue firms was related to the 1990s technology boom in the case of initial public offerings (IPO), but we detect earnings management by large firms that conducted a seasoned equity offering (SEO). In this context, small and medium issuers took advantage of the investors' sentiment towards large firms in order to conduct their overpriced stock issues.
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