Department of Finance
Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
Institutional Affiliation: Northwestern University
Information about this author at RePEc
NBER Working Papers and Publications
|January 1990||Understanding Stock Price Behavior around the Time of Equity Issues|
with Deborah Lucas, Robert L. McDonald
in Asymmetric Information, Corporate Finance, and Investment, R. Glenn Hubbard, editor
|November 1989||Understanding Stock Price Behavior around the Time of Equity Issues|
with Deborah J. Lucas, Robert L. McDonald: w3170
It is well-documented that stock prices rise significantly prior to an equity issue, and fall upon announcement of the issue. We expand on earlier studies by using a large sample which includes OTC firms, by examining the cross-sectional properties of the price rise, and by using accounting data to track the pattern of debt ratios and Tobin's q around the time of equity issues. We consider a number of explanations for our results, and conclude that the data is largely consistent with informational models in which managers are asymmetrically informed about the value of the firm. Surprisingly, debt ratios do not increase prior to equity issues, suggesting that strained debt capacity is not the main reason for equity issues. The behavior of Tobin's q is consistent with equity issues being use...
- R. Glenn Hubbard, editor. Assymetric Information, Corporate Economy and Investment. Chicago: University of Chicago, 1990.
- Korajczyk, Robert A., Deborah J. Lucas and Robert L. McDonald. "Equity Issues With Time-Varying Asymmetric Information," Journal of Financial and Quantitative Analysis, 1992, v27(3), 397-418.
|October 1988||The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence|
with Deborah Lucas, Robert McDonald: w2727
This paper develops a formal model of the timing and pricing of new equity issues, assuming that managers are better informed than new investors about the quality of the firm. Firms will prefer to issue equity when the market is most informed about the quality of the firm. This implies that equity issues tend to follow information releases, such as earnings announcements. The model also predicts a relation between the timing and pricing of equity issues. The price drop at the time of the equity issue announcement should increase in the time since the last information release, and the price drop at issue should increase with the time since the last information release or issue announcement. We test the predictions of the theory on a sample of NYSE, AMEX and OTC firms who issued equity over ...
Published: "The Effect of Information Releases on the Pricing and Timing of Equity Issues." From The Review of Financial Studies, Vol. 4, No. 4, pp. 685-708, (1991).