The Operating Performance of Firms Conducting Seasoned Equity Offerings




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    • Loughran is from the University of Iowa, Ritter is from the University of Florida. We thank Brad Barber, David P. Brown, Tom Carroll, Hsuan-chi Chen, Dan Collins, Harry DeAngelo, Linda DeAngelo, Amy Dunbar, Paul Gompers, Charles Hadlock, Robert S. Hansen, Paul Healy, David Ikenberry, Josef Lakonishok, Inmoo Lee, Ronald Masulis, Stewart Myers, John Phillips, Mort Pincus, Kevin Rock, Theodore Sougianis, Jeremy Stein, René Stulz, Mohan Venkatachalam, Anand Vijh, Xuemin Yan, two anonymous referees, and seminar participants at the NBER, the Milken Institute, the 1995 Illinois-Indiana-Purdue finance conference, the 1996 WFA meetings, Dartmouth, Massachusetts Institute of Technology, Northwestern, Yale, and the Universities of Florida and Iowa for useful comments.


Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering, following a sharp run-up in the year prior to the offering. This article documents that the operating performance of issuing firms shows substantial improvement prior to the offering, but then deteriorates. The multiples at the time of the offering, however, do not reflect an expectation of deteriorating performance. Issuing firms are disproportionately high-growth firms, but issuers have much lower subsequent stock returns than nonissuers with the same growth rate.