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The Puzzle of Frequent and Large Issues of Debt and Equity

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  • Huang, Rongbing
  • Ritter, Jay R.

Abstract

More frequent, larger, and more recent debt and equity issues in the prior 3 fiscal years are followed by lower stock returns in the subsequent year. The intercept of a q-factor calendar-time regression for the value-weighted (VW) portfolio of firms with at least 3 large issues is −0.63% per month (t-stat. = −4.31). Purging the factor returns of recent issuers increases the magnitude of the estimated underperformance following frequent equity issues. A VW Fama–MacBeth regression shows that firms with 3 equity issues underperform nonissuers by 0.65% per month (t-stat. = −2.65). Earnings announcement returns are low following frequent issues, especially equity issues.

Suggested Citation

  • Huang, Rongbing & Ritter, Jay R., 2022. "The Puzzle of Frequent and Large Issues of Debt and Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(1), pages 170-206, February.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:1:p:170-206_6
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