Can the stock market anticipate future operating performance? Evidence from equity rights issues

Mohammed Rezaul Kabir, Peter Roosenboom

Research output: Contribution to journalArticleAcademicpeer-review

15 Citations (Scopus)

Abstract

This paper examines whether the stock market valuation impact is consistent with subsequent operating performance of firms. We use data for equity rights offerings - the widely adopted flotation method in the Netherlands. We first examine the stock market announcement effect of rights issues and observe that a statistically significant stock price decline takes place when companies announce rights issues. Further stock price decline is also observed during the subscription period. We then analyze post-rights issue operating performance of firms and find that, consistent with the announcement period decline in stock price, rights issuing firms subsequently exhibit a statistically significant decline in their operating performance. Additional investigation of both stock and operating performance decline provides full support for the information asymmetry hypothesis, partial support for the free cash flow hypothesis but no support for the window of opportunity hypothesis.
Original languageEnglish
Pages (from-to)93-113
Number of pages47
JournalJournal of corporate finance
Volume9
Issue number1
DOIs
Publication statusPublished - 2003
Externally publishedYes

Fingerprint

Equity
Stock market
Rights issues
Operating performance
Stock prices
Rights offerings
Flotation
Stock market valuation
Information asymmetry
Announcement effect
Announcement
Free cash flow
The Netherlands
Stock performance
Subscription

Keywords

  • Rights issues
  • METIS-266529
  • Firm performance
  • Equity offerings
  • Valuation effect
  • IR-80224

Cite this

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Can the stock market anticipate future operating performance? Evidence from equity rights issues. / Kabir, Mohammed Rezaul; Roosenboom, Peter.

In: Journal of corporate finance, Vol. 9, No. 1, 2003, p. 93-113.

Research output: Contribution to journalArticleAcademicpeer-review

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