IDEAS home Printed from https://ideas.repec.org/a/sae/manlab/v38y2013i4p505-515.html
   My bibliography  Save this article

An Empirical Investigation of the Relationship between Net Stock Issues and Returns in India

Author

Listed:
  • Sanjay Sehgal

    (Sanjay Sehgal is Professor of Finance at Department of Financial Studies, University of Delhi, South Campus, Delhi, India. E-mail: sanjayfin15@gmail.com)

  • Asheesh Pandey

    (Asheesh Pandey is Associate Professor Finance at Fortune Institute of International Business, Delhi, India. E-mail: asheeshpandey@rediffmail.com)

Abstract

In this article, we focus on net stock issues which is a relatively unexplored asset pricing anomaly. We examine the relationship between net stock issues and returns in the Indian context using data for BSE 500 stocks from 1995 to 2012. The relationship between size, value and momentum attributes and stock return is confirmed, which is consistent with prior literature. We specifically find a negative relationship between net stock issues and returns after controlling for other firm characteristics, thus implying that companies with larger public offerings provide lower post-event returns. The net stock issues attribute is empirically associated with size and value characteristics. Large firms and low price to book (P/B) or relatively distressed firms tend to make bigger public offerings. While the former may do it to finance business expansion plans, the latter rely more on external financing owing to weak earnings record. Our findings are pertinent for policymakers, market practitioners and academicians. The study contributes to equity market anomaly literature for emerging markets.

Suggested Citation

  • Sanjay Sehgal & Asheesh Pandey, 2013. "An Empirical Investigation of the Relationship between Net Stock Issues and Returns in India," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 38(4), pages 505-515, November.
    • Handle: RePEc:sae:manlab:v:38:y:2013:i:4:p:505-515
    DOI: 10.1177/0258042X13514888
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0258042X13514888
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0258042X13514888?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
    2. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    3. G. Alexandridis & D. Petmezas & N.G. Travlos, 2010. "Gains from Mergers and Acquisitions Around the World: New Evidence," Financial Management, Financial Management Association International, vol. 39(4), pages 1671-1695, December.
    4. Sanjay Sehgal & Siddhartha Banerjee & Florent Deisting, 2012. "The Impact of M&A Announcement and Financing Strategy on Stock Returns: Evidence from BRICKS Markets," Post-Print hal-01881917, HAL.
    5. Basu, Sanjoy, 1983. "The relationship between earnings' yield, market value and return for NYSE common stocks : Further evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 129-156, June.
    6. Billett, Matthew T. & Flannery, Mark J. & Garfinkel, Jon A., 2011. "Frequent issuers' influence on long-run post-issuance returns," Journal of Financial Economics, Elsevier, vol. 99(2), pages 349-364, February.
    7. Philip Brown & Gerry Gallery & Olivia Goei, 2006. "Does market misvaluation help explain share market long‐run underperformance following a seasoned equity issue?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(2), pages 191-219, June.
    8. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974, Elsevier.
    9. Truong, Cameron, 2011. "Post-earnings announcement abnormal return in the Chinese equity market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 637-661.
    10. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    11. Brav, Alon & Geczy, Christopher & Gompers, Paul A., 2000. "Is the abnormal return following equity issuances anomalous?," Journal of Financial Economics, Elsevier, vol. 56(2), pages 209-249, May.
    12. repec:bla:jfinan:v:43:y:1988:i:2:p:507-28 is not listed on IDEAS
    13. Eckbo, B. Espen & Masulis, Ronald W. & Norli, Oyvind, 2000. "Seasoned public offerings: resolution of the 'new issues puzzle'," Journal of Financial Economics, Elsevier, vol. 56(2), pages 251-291, May.
    14. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 1.
    15. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    16. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    17. Fangjian Fu, 2010. "Overinvestment and the Operating Performance of SEO Firms," Financial Management, Financial Management Association International, vol. 39(1), pages 249-272, March.
    18. Loughran, Tim & Ritter, Jay R, 1995. "The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    19. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    20. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    21. Mario Levis, 1995. "Seasoned equity offerings and the short‐ and long‐run performance of initial public offerings in the UK," European Financial Management, European Financial Management Association, vol. 1(2), pages 125-146, July.
    22. Hwang, Soosung & Keswani, Aneel & Shackleton, Mark B., 2008. "Surprise vs anticipated information announcements: Are prices affected differently? An investigation in the context of stock splits," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 643-653, May.
    23. Sen, Kaustav, 2009. "Earnings surprise and sophisticated investor preferences in India," Journal of Contemporary Accounting and Economics, Elsevier, vol. 5(1), pages 1-19.
    24. Kryzanowski, Lawrence & Lazrak, Skander & Rakita, Ian, 2010. "Behavior of liquidity and returns around Canadian seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2954-2967, December.
    25. Bayless, M. & Jay, N., 2008. "A multiperiod evaluation of returns following seasoned equity offerings," Journal of Economics and Business, Elsevier, vol. 60(4), pages 291-311.
    26. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2.
    27. Altinkilic, Oya & Hansen, Robert S., 2003. "Discounting and underpricing in seasoned equity offers," Journal of Financial Economics, Elsevier, vol. 69(2), pages 285-323, August.
    28. Sanjay Sehgal & Asheesh Pandey, 2010. "Equity Valuation Using Price Multiples: Evidence from India," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 6(1), pages 89-108.
    29. Sanjay Sehgal & Asheesh Pandey, 2010. "Equity Valuation Using Price Multiples: A Comparative Study for BRICKS," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 2(1), pages 6891-6891, December.
    30. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
    2. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    3. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    4. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974, Elsevier.
    5. Andrikopoulos, Panagiotis, 2009. "Seasoned equity offerings, operating performance and overconfidence: Evidence from the UK," Journal of Economics and Business, Elsevier, vol. 61(3), pages 189-215.
    6. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    7. Bessembinder, Hendrik & Zhang, Feng, 2013. "Firm characteristics and long-run stock returns after corporate events," Journal of Financial Economics, Elsevier, vol. 109(1), pages 83-102.
    8. Dionysia Dionysiou, 2015. "Choosing Among Alternative Long-Run Event-Study Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 158-198, February.
    9. Alexandros Kontonikas & Alexandros Kostakis, 2013. "On Monetary Policy and Stock Market Anomalies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(7-8), pages 1009-1042, September.
    10. Benzoni, Luca & Schenone, Carola, 2010. "Conflict of interest and certification in the U.S. IPO market," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 235-254, April.
    11. Abhyankar, Abhay & Ho, Keng-Yu, 2007. "Long-horizon event studies and event firm portfolio weights: Evidence from U.K. rights issues re-visited," International Review of Financial Analysis, Elsevier, vol. 16(1), pages 61-80.
    12. Kolari, James W. & Pynnonen, Seppo & Tuncez, Ahmet M., 2021. "Further evidence on long-run abnormal returns after corporate events," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 421-439.
    13. Ahern, Kenneth R., 2009. "Sample selection and event study estimation," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 466-482, June.
    14. Kewei Hou & Chen Xue & Lu Zhang, 2017. "Replicating Anomalies," NBER Working Papers 23394, National Bureau of Economic Research, Inc.
    15. Hsieh, Jim & Walkling, Ralph A., 2006. "The history and performance of concept stocks," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2433-2469, September.
    16. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    17. Achim Himmelmann & Dirk Schiereck & Marc Simpson & Moritz Zschoche, 2012. "Long-term reactions to large stock price declines and increases in the European stock market: a note on market efficiency," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(2), pages 400-423, April.
    18. Bayless, Mark & Jay, Nancy R., 2003. "Is the performance of firms following seasoned equity issues anomalous?," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1273-1296, July.
    19. Peter S. Schmidt & Urs von Arx & Andreas Schrimpf & Alexander F. Wagner & Andreas Ziegler, 2019. "Common risk factors in international stock markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(3), pages 213-241, September.
    20. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128, Elsevier.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:manlab:v:38:y:2013:i:4:p:505-515. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.xlri.ac.in/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.