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Managers’ Private Information, Investor Underreaction and Long-Run SEO Performance


  • We would like to thank the EFM editor, John A. Doukas, and, in particular, Jay Ritter, the referee, whose comments led to significant improvements in the paper. We also thank Michael Brennan, Ning Gao, Ian Garrett, Kai Li, Weimin Liu, Roberto Mura, and participants at the 2009 Spanish Finance Association meeting, the 2010 Midwest Finance Association meeting, and the 2010 Eastern Finance Association meeting for helpful comments. Correspondence: Pawel Bilinski.


For a sample of 2,879 SEOs by US stocks from 1970 to 2004, this paper decomposes an average three-year post-issue buy-and-hold abnormal return of −25.9% (relative to size- and B/M-matched non-issuing stocks) into two components. One component, representing 41% of the total, is due to lower risk exposure. The second component, representing the remaining 59%, is abnormal performance related to the surprise element of the issue decision, which the paper attributes to managers’ private information that the market does not incorporate into the announcement return. This second component results in abnormal returns during the 16 months after the offering.

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