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Seasoned public offerings: Resolution of the "new issues puzzle"

Eckbo, Espen B.; Masulis, Ronald W.; Norli, Øyvind
Working paper
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URI
http://hdl.handle.net/11250/227276
Date
1998
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  • Discussion papers (FOR) [588]
Abstract
The `new issues puzzle' is that stocks of common stock issuers subsequently underperform non-

issuers matched on size and book-to-market ratio. With 7,000+ seasoned equity and debt issues,

we document that issuer underperformance re

ects lower systematic risk exposure for issuing

firms relative to the matches. As equity issuers lower leverage, their exposures to unexpected

in

ation and default risks decrease, thus decreasing their stocks' expected returns relative to

matched firms. Also, equity issues significantly increase stock liquidity (turnover) which also

lowers expected returns relative to non-issuers. Our conclusions are robust to issue characteris-

tics, to \decontamination" of factor portfolios, and to model specifications.
Publisher
FOR
Series
Discussion paper;09/98

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