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Is the Market Optimistic about the FutureEarnings of Seasoned Equity OfferingFirms?

Published online by Cambridge University Press:  06 April 2009

Peter A. Brous ,
Vinay Datar  and
Omseh Kini
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Abstract

The leading explanation for the post-issue long-runstock return underperformace of seasoned equityoffering firms is that investors have optimisticexpectations regarding future earnings and theunderperformance occures as these expectations arecorrected over time. To directly test thishypothessis, we examine investors' reaction toquarterly earnings announcements over a five-yearperiod following the offering for a large sample ofseasoned equity issuing firms. In general, ourevidence suggests that investorsare not disappointedby earnings announcements that follow seasonedequity offerings. This result is not sensitive towidening the windown over which earningsannouncement returns are computed. This result alsoholds true for subsets of equity issuing firms. Thechoice fo these three subsets is predicated byextant evidence that these firms are likely toconvey relatively more unfavorable informationthroung their earnings announcements. Overall, ourfindings are inconsistent with the optimisticexpectations hypotgesis.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 2 , June 2001 , pp. 141 - 168
Copyright
Copyright © School of Business Administration, University of Washington 2001

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Footnotes

*

Brous and Datar, Albers School of Business,Seattle University, Seatle, WA 98122; Kini,Robinson College of Business, Georgia stateUniversity, Atlanta, GA 30303. This paper hasbenifited from comments by seminar participents atthe 1998 American Finance Association Meetings,and in workshops at Arizona State University,University of Oregon, and University ofWashington. We espwcially acknowledge comments byChristopher Geczy, Jarrad Harford, JonathanKarpoff (the editor), Wayne Mikkelson, Jim Owers,Ken Shah, Katherine Spiess (referee), and IvoWelch (associate editor and referee). We thankBing Xuan Lin and Yongduk Pak for excellentresearch assitance.

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