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Understanding stock price behavior around external financing

Author

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  • Cao, Min
  • Martin, J. Spencer
  • Yao, Yaqiong

Abstract

The negative association between pre-financing price run-ups and post-financing price drift-downs is well documented in the literature. We find that firms experiencing pre-financing run-ups and firms experiencing post-financing long-term underperformance may not always be the same firms. The firms with high levels of cash flows experience pre-financing price run-ups but do not suffer post-financing price drift-downs. On the other hand, firms with low cash flow levels do not have pre-financing price run-ups but experience post-financing long-term underperformance even after controlling for various well-documented anomalies. Profitability analyses around external financing suggest that high-cash-flow firms' pre-financing price run-ups could be driven by their robust profitability, whereas low-cash-flow firms' post-financing underperformance might be attributable to their losses.

Suggested Citation

  • Cao, Min & Martin, J. Spencer & Yao, Yaqiong, 2025. "Understanding stock price behavior around external financing," Journal of Corporate Finance, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:corfin:v:91:y:2025:i:c:s0929119924001925
    DOI: 10.1016/j.jcorpfin.2024.102730
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    More about this item

    Keywords

    External financing; Net issuance puzzle; Stock price run-ups; Stock underperformance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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