Long-run Stock Price Performance Research Articles

Debt Structure Adjustments and Long-Run Stock Price Performance

We examine the long-run implications of debt structure adjustments using a sample of U.S. bond IPOs from 1971 to 1994. Bond IPOs result in simultaneous and pronounced changes in both debt maturity and debt ownership structures. We document that firms engaging in debt IPOs substantially underperform their size-and-book-to-market-matched benchmarks by 33.39 and 55.99% over the 3- and 5-year post-offer periods. Our results are strikingly similar to those reported for equity offers but contrast the evidence for seasoned debt offers. We find evidence that debt IPOs are timed to coincide with the market having the highest expectations concerning firms' prospects. A negative relation is documented between debt maturity and future growth opportunities. In part, the underperformance can be attributed to significantly reduced growth opportunities following the offering. Post-offer underperformance is more pronounced for (a) longer maturity issues and (b) firms that do not experience an increase in bank monitoring. Journal of Economic Literature Classification Numbers: G12, G24, G30, D82.

Factors affecting the stock price performance of share issued privatizations

Shareholders in many share issued privatizations (SIPs) have enjoyed substantial increases in the value of their investments. This study examines the factors that influence the long-run stock price performance of an international sample of SIPs, focusing on three-year buy and hold returns. After controlling for market-wide changes in stock prices, one finds that the relative size of the company has a negative effect on stock price performance, retained government ownership has a positive effect, the presence of a golden share has a negative effect, initial underpricing has a positive effect, and the timing of the privatization has no effect. Performance also depends on the industry and home country.

Debt Structure Adjustments and Long-run Stock Price Performance

We examine the long-run implications of debt structure adjustments using a sample of U.S. bond IPOs from 1971 to 1994. Bond IPOs result in simultaneous and pronounced changes in both debt maturity and debt ownership structures. We document that firms engaging in debt IPOs substantially underperform their size-and-book-to-market matched benchamarks by 33.39% and 55.99% over the tree- and five-year post-offer periods. Our results are strikingly similar to those reported for equity offers but contrast the evidence for seasoned debt offers. We find evidence that debt IPOs are timed to coincide with the market having the highest expectations concernig firms' prospects. A negative relation is documented between debt maturity and future growth opportunities. In part, the underperformance can be attributed to significantly reduced growth opportunities following the offering. Post-offer underperformance is more pronounced for (a) longer maturity issues, and (b)firms that do not experience an increase in bank monitoring.

THE LONG-RUN PERFORMANCE OF COMPANIES THAT WITHDRAW SEASONED EQUITY OFFERINGS

We examine the long-run stock price and operating performance of companies that withdraw seasoned equity offerings (SEOs). Firms that withdraw an offering provide an opportunity to examine whether markets fully adjust to the information conveyed when managers announce the intent to issue shares, independent of any agency problems that might be intensified by the completion of the offering. As in completed seasoned equity offerings, long-horizon event-time operating and stock price performance in sample firms is substantially lower than what is observed among control firms. Underperformance is also observed in an equally weighted calendar-time analysis. Results are consistent with overpricing among small firms that attempt, but then withdraw, SEOs.

Investment Banker Reputation and the Performance of Seasoned Equity Issuers

We study the relation between investment banker reputation and announcement-period returns and between banker reputation and three-year post-issue holding-period returns for firms that conducted seasoned equity offerings (SEOs) between 1980 and 1994. We find a positive relation overall between investment banker reputation and announcement-period returns but no significant relation between investment banker reputation and long-run post-issue stock price performance. We also design an empirical model to predict the prestige of the issuer’s underwriter. We find that announcement-period returns are significantly related to banker prestige for issuers with high levels of information asymmetry that go against type to use a high-prestige investment banker.

The Long-Run Performance of Firms that Withdraw Seasoned Equity Offerings

We examine the long-run stock price and operating performance of companies that withdraw seasoned equity offerings. Firms that withdraw an offering provide an opportunity to examine the long-run impact of the intent to issue shares, independent of any agency problems that might be intensified by the actual acquisition of equity capital. As in completed SEOs, long-horizon stock returns to sample firms are substantially lower than returns to control firms. Long-run operating performance is similarly poor. Long run stock price performance is worst among high market-to-book assets firms that withdraw equity issues in hot SEO markets. The evidence is consistent with a model in which firms attempt to sell overvalued shares to a market that doesn't react sufficiently to the implications of the action, even if the shares are not actually issued.