Finance Department, The Pennsylvania State University, University Park. I wish to thank John Byrd, Kelly Eakin, Michael Hertzel, Michael Hopewell, Coleman Kendall, Omesh Kini, James McKeown, Wayne Mikkelson, George Racette, Philip Shane, Gary Shea, René Stulz, and an anonymous referee for helpful comments on earier drafts. I also thank Lynch, Jones and Ryan, Inc. for providing the data from the Institutional Brokers Estimate System.
Common Stock Offerings and Earnings Expectations: A Test of the Release of Unfavorable Information
Article first published online: 30 APR 2012
1992 The American Finance Association
The Journal of Finance
Volume 47, Issue 4, pages 1517–1536, September 1992
How to Cite
BROUS, P. A. (1992), Common Stock Offerings and Earnings Expectations: A Test of the Release of Unfavorable Information. The Journal of Finance, 47: 1517–1536. doi: 10.1111/j.1540-6261.1992.tb04668.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper examines the revisions of analysts' forecasts of future earnings around announcements of common stock offerings. The forecasts of the current year earnings are, on average, decreased when firms announce plans to issue additional common stock. The size of the decrease is significantly related to announcement period abnormal stock returns. In contrast, forecasts of the five-year growth rate of earnings are, on average, unchanged. We interpret these results as being consistent with the claim that equity offering announcements convey unfavorable information regarding the firm's short-term but not its long-term earnings prospects.