Intended use of proceeds and the long-run performance of seasoned equity issuers |
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| Authors: | Don M Autore David E Bray David R Peterson |
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| Institution: | 1. The Olayan School of Business, American University in Beirut, Lebanon;2. Cardiff Business School, Cardiff University, UK;3. European Corporate Governance Institute, Belgium;1. McDonough School of Business, Georgetown University, United States;2. The World Bank, United States;3. The Office of the Comptroller of the Currency, United States;1. Beijing Institute of Technology, Zhuhai, No. 6 Jinfeng Road, Tangjiawan, Zhuhai City, Guang Dong, China;2. Department of Economics and Finance, University of Dayton, 300 College Park, Dayton, OH 45469-2251, USA;3. Auckland University of Technology, Auckland, New Zealand;1. Department of Finance, Driehaus College of Business, DePaul University, 1 East Jackson Blvd., Chicago, IL 60604, United States;2. Department of Economics and Finance, Middle Tennessee State University, Business and Aerospace N329C, MTSU Box 27, Murfreesboro, TN 37132, United States |
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| Abstract: | We investigate the relation between seasoned equity issuers' stated intended use of proceeds and their subsequent long-run stock and operating performance. Stated intended uses of proceeds are: investment, recapitalization, and general corporate purposes. We find that issuers stating recapitalization or general corporate purposes experience abnormally poor performance in the subsequent three years, but issuers stating investment display little or no subsequent underperformance. These results suggest that issuers with specific plans to use the proceeds for investment purposes are credibly signaling profitable investment opportunities, whereas issuers without specific investment plans are more likely to be opportunistic market timers. Consistent with a timing motive, the secondary component of the offering is significantly larger when the issuer is not specific about investment plans. |
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