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The impact of corporate growth opportunities on the market response to new equity announcements

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  • B. M. Burton
  • A. A. Lonie
  • D. M. Power

Abstract

In this paper we present novel evidence on the stock market reaction to new equity issues in the UK. Using a sample of 116 announcements made during the period 1989-1991 we find evidence of significantly negative market reactions to such news, consistent in both sign and magnitude with earlier US results. We proceed to examine the role of growth opportunities, proxied for by accounting growth, in affecting cross-sectional variation within the negative share price response and provide evidence that, while income growth in particular does have some bearing on announcement period price adjustments, this relationship is not monotonic and appears to be driven by a subset of the worst-performing firms for whom the market reaction to equity issues is especially unfavourable.

Suggested Citation

  • B. M. Burton & A. A. Lonie & D. M. Power, 2000. "The impact of corporate growth opportunities on the market response to new equity announcements," Applied Financial Economics, Taylor & Francis Journals, vol. 10(1), pages 27-36.
    • Handle: RePEc:taf:apfiec:v:10:y:2000:i:1:p:27-36
    DOI: 10.1080/096031000331897
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    Cited by:

    1. Jo Danbolt & Ian Hirst & Eddie Jones, 2011. "The growth companies puzzle: can growth opportunities measures predict firm growth?," The European Journal of Finance, Taylor & Francis Journals, vol. 17(1), pages 1-25.
    2. Bruce Burton & A. Alasdair Lonie & David Power, 2003. "Insider trading, growth opportunities and the market reaction to new financing announcements," The European Journal of Finance, Taylor & Francis Journals, vol. 9(4), pages 301-322.
    3. Imad Moosa & Sulaiman Al-Abduljader, 2010. "A test of the news model of stock price determination in an emerging market: the case of Kuwait," Applied Financial Economics, Taylor & Francis Journals, vol. 20(5), pages 397-405.
    4. Bruce Burton, 2003. "Evidence on the extent of relationships among investment opportunity set proxies," Applied Economics Letters, Taylor & Francis Journals, vol. 10(7), pages 437-441.
    5. Yi-Mien Lin & Shwu-Jen You & Fung-Jiao Lin, 2008. "The Effects of Pre-issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1138-1163.
    6. Eyden Samunderu & Anita Yordanova, 2024. "The Effect of Public Contract Winning Announcements on Share Prices: An Event-Based Study on the Pharmaceutical Industry," Journal of Economic Analysis, Anser Press, vol. 3(1), pages 1-26, March.

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